News: Buyside

Klesch: A $150bn opportunity
As market conditions deteriorate, many businesses with sound operating margins that until recently were considered to be in rude health are in desperate need for investors to step in and help bridge short-term funding gaps. Investors are looking for ways of taking advantage of these circumstances.

?There will be a long, long period of value impairment affecting a lot of companies?, says distressed debt specialist Gary Klesch of Klesch & Company in London. ?If it is a barometer of evidence, the number of phone calls we're getting daily from investors wanting to invest in distressed, I would suggest it's at an all time high.?

Klesch, who has spent nearly three decades in the business of investing in securities that trade at substantial discounts to their nominal value, believes the value of total impaired asset in Europe alone has recently shot up to $150bn. He says there will be more as the outlook continues to be bleak, with bank debt and corporate bonds being among the prime targets.

Whether the distressed market's potential will be fully realised remains to be seen. Says Klesch: ?There are a lot of available assets that are value impaired, and there is a lot of money waiting to go in there ? but there are few people in between who understand the risks. The propensity to misinvest in this area is huge.?

HNWIs, families to rethink allocations
Following the events of September 11, a number of private investors are looking to reduce their exposure to private equity and other asset classes they now perceive as more volatile.

According to a note by the private equity fund group of Salomon Smith Barney, several high net worth individuals and family offices have suspended near-term plans for deploying fresh capital to private equity and instead have turned their attention to liquidity as an overriding investment consideration. ?A ?wait and see? attitude among such investors is expected to continue as long as political and military uncertainties remain?, the investment bank said.

The perception of greater volatility in alternative asset classes is said to have had an effect particularly on those investors who have already taken a great deal of pain in the public markets over the past two years.

This could impact the fundraising plans especially of funds of funds, many of whom are managing money for individuals, endowment trusts and families.

One fund of fund manager in London commented that whether funds of funds would be affected by the trend would depend on what type of private clients they were offering their services to. ?There are a lot of people particularly in the US who thought they were rich and then, after the downturn, discovered that they are not. They will be a great deal more affected than the families and endowments who have been in alternative assets for some time?, she said.

On the institutional side, allocation levels are not expected to change much in the short term.

Salomon Smith Barney suggests that large institutions, pension funds and other sophisticated investors are not planning to alter their investment strategies in response to recent events. ?[They] cite the fact that private equity's fundamentals remain unchanged, reiterating the position that they will not attempt to ?time to market? by altering long-term investment plans in response to short-term gyrations in the broader market?, the bank observed.