P.E. Veteran Launches Event-Driven Fund

Jan 10 2007 | 3:21pm ET

Former private equity veteran Frank DeRose has launched Ferrata Capital Management LP, an event-driven hedge fund, with $3 million in initial equity.

DeRose’s fund, which expects to close on another $10 million by the end of the first quarter, will look across all spectrums of investment opportunities including divestitures and arbitrage, restructurings, and corporate finance opportunities. It will not utilize leverage.

“I’m looking at companies that have been beaten up and are either going through management changes or having operational issues,” said DeRose. “I will be looking at distressed issues soon because you have so many companies out there taking on enormous amounts of debt and one or two bad quarters for these companies and they’re going to be hemorrhaging. The valuation levels have gone up considerably and banks are all too willing to finance anything and the multiples being paid for most companies are too high.”

He noted that General Motors was a great investment candidate in 2006 because management was under pressure from an activist investor and the company was struggling operationally, which led to a restructuring.

DeRose, who formerly worked at Goldman Sachs, JP Morgan/Chase and Swiss Re where he was involved in high yield corporate finance and fixed income transactions, is banking on his private equity experience to woo investors and generate returns for his fund.

“I think I bring a little more to the table than the average hedge fund manager who knows how to deal with risks but in doing the analysis they’re usually relying on other people. So I bring the hands-on analysis and operational experience to the table,” he said.

And unlike other event driven shops, DeRose said he will keep his fund’s capacity between $60 million to $85 million because of the increased competition in the space.

“There are 9,000 hedge funds and everyone is trying to trade the same spreads and these other funds are not going to make the returns they’re used to making, and that’s one of the reasons why I want to remain small,” he said.

The new fund charges fees of 2/20 with a $250,000 minimum investment requirement for the first year and $500,000 for the second year.

After the fund reaches a reasonable scale, DeRose also anticipates launching a private equity fund that will look to invest in smaller companies with between $10 million to $25 million in EBITDA.

“There’s going to be a convergence between private equity and hedge funds and several hedge funds are already going that route such as Och-Ziff and DE Shaw. To remain on top you’re going to have to find other ways to make money and be more creative.”


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