Cerberus Is Now Hunting Smaller Prey

Stephen A. Feinberg is on the defensive. He can deal with barbs about his botched investment in Chrysler and false rumors that some of his hedge funds are about to default. But what pains the reclusive founder of Cerberus Capital Management is the belief that an embarrassing investor stampede from two of his hedge funds has tarnished his reputation for doing what he does best: buy up deadbeat companies and their debt at bargain prices. As Feinberg tells : "If we had just had liquidity at the end of the year and early this year in the hedge funds, I think we could have made back a good amount of money. In our other funds, we did."

Now the 49-year-old titan of distressed investing is fighting back. Despite a rare losing streak, Feinberg says his $24.3 billion firm has raised about $1 billion in recent months. "People still want to invest with us," he insists. Feinberg also plans to launch several new funds this fall. The goal: get back to his roots. Instead of pouring money into high-profile names such as General Motors' finance arm, GMAC, and Chrysler (a move he now characterizes as a mistake), he plans to scavenge among smaller players. "The bigger, well-known go-go names have been fully priced," Feinberg says. "But there are still a lot of opportunities in the middle market and in structured credit."