Griffin's Citadel Said to Build Up Distressed-Debt Investingby and
Ken Griffin’s $25 billion hedge fund Citadel LLC is building a team that wagers on the debt of distressed borrowers just as the number of companies reeling under the weight of such obligations has soared to levels last seen during the aftermath of the 2008 financial crisis, according to people familiar with the matter.
The investment firm has hired Alex Shayevsky, who was with JPMorgan Chase & Co., and Matt Kaplan from Imperial Capital, the people said, asking not to be identified as the information isn’t public. Barrett Eynon joined in February to lead the group after having been head of fixed-income at Pentwater Capital Management. Zia Ahmed, a spokesman for Citadel, declined to comment.
The move marks a repeat foray by the Chicago-based firm after a previous attempt to profit from distressed debt fizzled in 2009 when it pulled back following losses, people familiar with the matter said. This year has also proved to be one of the worst for hedge funds that specialize in trading such debt. At the same time, the growing pool of indebted companies in trouble is drawing more attention and interest as investors brace for a turn in the credit cycle.
Citadel has more than doubled its assets under management in the last four years as its performance and reputation, tarnished by the financial crisis, rebounded. Its flagship Wellington hedge fund has generated annual profits of 11 percent to 62 percent since 2009 and is up 12 percent this year through October, according to a person with knowledge of the matter.
The firm is now trying to keep its funds from outgrowing investment opportunities. Last month, it invited investors to pull up to $500 million from Wellington and its Kensington fund by the end of the year, according to a letter to investors that was obtained by Bloomberg.
Citadel rang in its 25th anniversary recently with a spree of trans-Atlantic celebrations that included performances by Katy Perry and Maroon 5, people with knowledge of the matter said.
The amount of junk bonds trading at distressed levels has increased to 20.1 percent of the high-yield market in November, which is the most since September 2009, according to a Nov. 30 report from New York-based credit-ratings firm Standard & Poor’s.
A Bank of America Merrill Lynch index of distressed debt that tracks about $250 billion of bonds has slumped 32 percent this year. That’s only rivaled by the 45 percent plunge in 2008 in figures going back more than 18 years, the index data show.