Lasry's Avenue Capital Group to Raise Fund to Invest in High-Yield Debt

Avenue Capital Group, the hedge fund run by Marc Lasry, plans to raise a fund to buy different types of credit by selling shares to the public, a first for the firm.

The firm has hired Randy Takian from Morgan Stanley to oversee the fund as Avenue looks to diversify its product offerings and potentially raise more portfolios by selling shares to the public, according to people familiar with the decision. Takian is listed as trustee and chief executive officer of the Avenue Income Credit Strategies Fund, according to a prospectus filed yesterday with the U.S. Securities and Exchange Commission.

Avenue joins Apollo Global Management LLC and Blackstone Group LP’s GSO Capital Partners LP in raising debt funds by selling publicly traded shares. The firms are seeking to capitalize on revived demand for loans and bonds after the worst financial crisis since the 1930s.

The Avenue closed-end fund will invest at least 80 percent in leveraged loans, unsecured high-yield debt and structured products such as collateralized debt obligations, the firm said in the prospectus.

CDOs pool high-yield, high-risk bonds and slice them into securities of varying risk and return.

It may also invest in derivatives, including credit-default swaps and foreign currency derivatives so it can hedge against losses from debt denominated in different currencies, according to the filing.

Todd Fogarty, a spokesman for New York-based Avenue, declined to comment.

Leveraged Loan Returns

The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Total Returns Index has returned 7.1 percent this year as of yesterday. The index tracks the 100 largest dollar-denominated first-lien leveraged loans. Junk bonds have returned 13.6 percent this year as of yesterday, according to Bank of America Merrill Lynch index data. Speculative-grade, or junk debt is ranked BBB- by Standard & Poor’s and less than Baa3 at Moody’s Investors Service.

Bank-loan mutual funds had inflows of $177 million for the week ended Oct. 6, bringing total inflows to more than $9.6 billion, according to Lipper data published in a Bank of America Corp. report. High-yield funds had inflows of $366 million, bringing year-to-date flows to more than $9.2 billion, according to the data.

Leon Black’s buyout firm Apollo filed a prospectus with the SEC Oct. 1 saying it plans to raise a fund by selling shares to the public, in which at least 80 percent of its assets will be invested in senior loans, according to the filing. Apollo Credit Management LLC will serve as the fund’s investment adviser, according to the filing.

Blackstone/GSO Fund

Blackstone completed the initial public offering of the Blackstone/GSO Senior Floating Rate Term Fund May 27, according to a news release. It issued $280 million of stock in the common share offering, not including the underwriters’ option to purchase additional shares. It was the New York-based firm’s first closed end fund, according to the release.

Private-equity firms pool investor money to take over companies, financing the purchases mostly with debt, with the intention of selling them later for a profit.

While this is Avenue’s first public fund, its Avenue International Management LP has served as a subadvisor on a portion of the Van Kampen Dynamic Credit Opportunities Fund. That fund’s investment advisor is Van Kampen Asset Management, a subsidiary of Van Kampen Investments Inc., according to a filing with the SEC. Invesco Ltd. announced it agreed to acquire Van Kampen last year.

Avenue, which has about $20 billion in assets under management, has raised more than $1 billion this year for a new distressed-debt fund and anticipates raising another $1 billion to $1.5 billion in the next three months, said one of the people, who declined to be identified because the talks are private.

To contact the reporter on this story: Kristen Haunss in New York at khaunss@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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