The vultures are still feeding on the carcass of the financial collapse, but there’s not much meat left on the bone.
Distressed hedge funds have been top performers since the crash of 2008, delivering their biggest gains in 2009. That’s when top players gained between 30 percent and 80 percent. This year, they are still the second-best performing strategy, up about 7.35 percent, according to the Absolute Return Distressed Index.
The problem? Most of the big deals — blowups such as the collapse of Lehman Brothers and the bankruptcy of major auto parts supplier Delphi — are behind them. Distressed funds need fresh meat.
“There hasn’t been a big bankruptcy in the last six to nine months,” said a hedge fund investor. “More stuff is coming out of distress than is going in.”
US corporate bankruptcy filings peaked in the second quarter of 2009, at around 16,000, and have been trending downward ever since. In the first quarter of 2011, they hit about 11,000, according to the American Bankruptcy Institute.
Silver Point co-founder Edward Mulé is optimistic the feast will continue. The $6.7 billion firm has had one of the best performances of distressed funds. It gained 10.36 percent this year through August and is up 98.6 percent since January 2009.
“The tail of the 2008/2009 distressed credit cycle, coupled with weak global growth and de-leveraging, will continue to generate a steady stream of interesting opportunities,” said Mulé in a recent investor letter obtained by The Post.
What’s driving Silver Point’s gains is old distressed plays, including Delphi, Lehman and Chrysler, according to its latest letter.
Silver Point and Paul Singer’s $19.8 billion Elliott Management were the Delphi senior creditors who led the bankruptcy restructuring in 2009 to stupendous profit for both.
The auto-parts maker went public last fall and is up 42 percent this year. Delphi, a top 10 holding of some 20 hedge funds, was also one of the big winners for Dan Loeb’s $8.7 billion Third Point last month, according to its monthly report. That fund has gained 7.3 percent through August this year.
Then there’s Lehman, whose bankruptcy turned into a gold mine for the vultures circling it. In addition to bolstering Silver Point, Lehman remains one of the biggest distressed positions for Elliott, whose US fund rose 7.5 percent through August, said one investor.
But new, big deals of the likes of Lehman are looking far out on the horizon — and perhaps across the pond. For more than a year now, hedgies have been hoping to munch on some European bank and company leftovers.
“People are all waiting for Europe,” said an Elliott investor, “but Europe continues to confound.”