A former managing principal at Halcyon Asset Management LLC expects to begin trading a new distressed debt fund next month as investors in Europe and the U.S. look to take advantage of mispriced European securities.
Eyck Capital Management LLP, based in London, intends to start its first fund, Eyck European Tactical Distressed Opportunities, on April 1, founder and managing partner Khing Oei said in an interview, targeting returns of 12 percent to 15 percent a year.
“I think the opportunities for the next five years will be massive in our space,” he said.
The average distressed hedge fund climbed 10.1 percent in 2012 and 2.3 percent in January, according to data from Chicago-based Hedge Fund Research Inc. Another London-based hedge fund manager, Warwick Capital Partners LLP, started a European distressed debt fund with $200 million from a single European institutional investor in October. Oei said that in the “European-dedicated distressed space, there are not that many players,” estimating there are fewer than 10 similar funds.
Oei, 37, said the “sweet spot” for his fund’s assets under management will be $500 million to $1 billion, and Eyck won’t accept any investments once it reaches $1 billion.
Oei was a London-based managing principal at Halcyon, the $10 billion multi-strategy hedge fund manager, from 2006 until 2011. He previously worked at New York-based Fortress Investment Group LLC and Goldman Sachs Group Inc.
The new fund will take both long and short positions in bonds, convertible bonds, equities and bank loans from across Europe. Eyck’s early focus will be on stressed debt such as bonds whose prices have been depressed due to events such as missed earnings or a ratings downgrade, and so-called special situations, which often include companies involved in mergers, acquisitions or bankruptcy.
Oei said he expects the fund to invest in more distressed debt -- securities issued by companies that are near a restructuring or default -- as such situations arise and market conditions change.
The fund will “play the liquid end of the distressed spectrum,” he said, meaning any security Eyck buys “has to be able to be sold within three months.”
Commitments have come from a fund of hedge funds, family offices and a university endowment, with a “good mix” of money from Europe and the U.S., Oei said. Oei and other Eyck executives, some current and former Halcyon executives have also invested, he said. Eyck isn’t taking seed capital.
Eyck, which means “oak” in old Dutch, remains “pretty negative” on the European economy, Oei said. That should create opportunities for Eyck and other distressed debt investors, on both the long and short sides. “Ultimately, what drives a whole distressed cycle is lack of growth,” he said.
Eyck Capital has eight employees, including five investment professionals. Two are, like Oei, former Halcyon employees: head of research Luca Moro and senior research analyst Jochem Floor.