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"We’re in the junk bond market every day and that gives us a wonderful view on what the financing market looks like for any private equity deal that would cross our radar" Nancy Havens, Havens Advisors |
Being in the three areas of merger arbitrage, distressed debt and high-yield bonds works well for Havens Advisors, an event-driven hedge fund shop in New York. "We’re in the junk bond market every day and that gives us a wonderful view on what the financing market looks like for any private equity deal that would cross our radar on the merger arbitrage side," says Nancy Havens, founder of Havens Advisors. The distressed sector of the market, however, has recently proved challenging for hedge funds. It is a crowded hedge fund space, and there have been few new opportunities. Havens says: "The default rates are just too low, which shows you again how much liquidity there is in the market." The only real opportunities to be found in the sector have been in the form of late-stage bankruptcies. "They were old distressed opportunities like Enron and Adelphia. I think people had held them for years and then were suffering from ‘bankruptcy fatigue’ – for some of these companies it had been six-and-a-half years!" Havens, for example, purchased an Enron trade claim in December 2005 that ended up returning about 85% at the end of 2006 because of the increasing value of Enron assets and because the cash distribution was higher than expected.
