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Published on: 2/7/2007
Last Visited: 3/4/2007
Old world value - Marc Lasry and his sister Sonia Gardner founded Avenue Capital to invest in good companies with bad balance sheets. A decade and $12 billion later, the firm is one of the world's most global distressed investors.
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Marc Lasry and his sister Sonia Gardner founded Avenue Capital to invest in good companies with bad balance sheets.
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As many as 150 people have crowded inside to cozy up to the likes of U.S. presidential candidates Al Gore and John Kerry, not to mention former president Bill Clinton, a pal of Lasry's and an invaluable drawing card.
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"If you believe in something, you should be willing to put money behind it," says Lasry, who also contributes smaller sums to individual Democrats, including recently elected New York State Attorney General Andrew Cuomo, Senator Hillary Rodham Clinton and several candidates for the U.S. Senate and House of Representatives from Ohio, Minnesota and Pennsylvania.
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As Hillary runs for president, Lasry and his wife will be prominent supporters.
These days the 47-year-old Lasry is passionately raising money for another cause dear to his heart -- growing his business.In the past two years, he has added nearly $5 billion to Avenue's war chest, mostly from institutional investors, bringing his firm's total hedge fund and other partnership assets to $10.4 billion (the firm manages an additional $2 billion in less risky collateralized loan obligations).In October, Lasry struck a deal to sell nearly 20 percent of Avenue to investment banking giant Morgan Stanley for almost $300 million, which will enable him to raise even more from institutions that want Avenue to put up a small percentage of its own money alongside theirs when starting a new fund (see box).
One of the world's biggest investors in distressed securities, Avenue is now positioned exactly where Lasry wants it for what he expects to be a major rise in default rates and bankruptcies for companies in the U.S., Europe and parts of Asia.
"Over the next few years, there will be a massive amount of opportunities," says Lasry, sitting in his midtown Manhattan office and wearing one of his trademark sweaters -- this day, a gray cotton pullover.The office is decorated with family pictures, an antique chess set and a photo of Lasry with Bill Clinton and Nobel Peace Prize winner Nelson Mandela.
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Lasry prides himself on being a traditional distressed-securities investor.He has kept a single-minded focus on trying to generate equitylike returns by buying senior debt instruments at a significant discount to asset value.He does not employ leverage and rarely uses derivatives.He is also not afraid to stash as much as half of his assets in cash when bond default rates are low, as he did in 2004 and 2005.
"We're very conservative," says Lasry."Most people don't like to lose money."
For a conservative investor, Lasry has done quite well, thanks to the 2 percent management fee and 20 percent incentive fee that Avenue charges for most of its funds.In two of the past three years, Lasry has been on the ranking of the 25 highest-paid hedge fund managers in Institutional Investor's sister publication, Alpha.The $130 million he made during 2005 earned him a tie for No. 25.Unlike many managers, Lasry is refreshingly candid when he talks about the motivation that money plays in the hedge fund game.
"If you love investing, then running a fund is a great business," he says."If you're right, you make a huge amount of money.If you're wrong, people will say, 'He used to be very good.'"
Lasry doesn't spend a lot of time ruminating about what others might think.In October he hired Chelsea Clinton, the daughter of Bill and Hillary, as an analyst for his U.S. special situations fund, working out of Avenue's New York office."She's an extremely talented and bright individual," Lasry says of the 26-year-old, who had worked as a consultant at McKinsey & Co. since 2003 and has a master's degree in international relations from University College at the University of Oxford.
Lasry's ambitions are global.In 2004 he exported Avenue's strategy to Europe, where in addition to buying distressed securities, the firm writes loans for small companies that couldn't otherwise get financing, because that region's high-yield bond markets are less developed than those in the U.S. Avenue has almost half of its assets in its U.S. and European strategies.
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Lasry calls them institutional funds -- portfolios that invest parallel to Avenue's hedge funds but have seven-year lockups and are marketed exclusively to pension funds and other institutions.Avenue typically spends the first three or four years investing the money and the subsequent few years unwinding the investments.Performance is not fully calculated until a fund unwinds completely.
The private-equity-like structure is appealing to institutions because they don't need to hand over any cash until Avenue is ready to make an investment.What's more, when Lasry raised money for his most recent U.S. institutional fund, he agreed to not start charging management fees until the capital was drawn down because he didn't know when the distressed-investing cycle would improve. (Performance fees aren't charged until the fund is unwound.) This is partly why Avenue has been able to build a war chest at the nadir of the credit cycle, despite the fact that there have been few good investment opportunities.
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Lasry's flagship fund, Avenue Investments, which has been investing in U.S. distressed securities since October 1995, has an average annual return of 11.54 percent over its lifetime, versus the 12.51 percent return for the HFRI distressed securities index.Avenue Europe Investments has compounded at a 12.17 percent annual clip since it was started in July 2004, compared with a 13.45 percent return for the HFRI index.Only Avenue Asia Investments has managed to beat the benchmark, climbing, on average, by an annualized 14.38 percent since 1999, versus 12.89 percent for the index.
Avenue investors, however, say the numbers are misleading.They argue that most hedge fund indexes are flawed and that the returns are inflated because funds not doing well eventually go out of business or stop reporting.But even if the returns reflect reality, they say it's unfair to compare Lasry to the index, because his style of investing is less risky and less volatile than that practiced by most of today's distressed-debt investors.
Lasry concedes that Avenue's funds will likely trail the index during good years but argues that they should do better when there are fewer opportunities for investors.
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"We like the attractive risk-adjusted returns that Marc can generate for us.
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"I've never seen Marc involved in trying to take control of a company," says Bruce Karsh, president of investment firm Oaktree Capital Management in Los Angeles and a close friend of Lasry's.
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"I've never seen Marc involved in trying to take control of a company," says Bruce Karsh, president of investment firm Oaktree Capital Management in Los Angeles and a close friend of Lasry's.
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As managing partner, Lasry oversees the firm's investments, meets with clients and raises money.Like many founders of multibillion-dollar hedge funds, he has delegated responsibility for some of the day-to-day running of his funds to a trusted senior management team.
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"Marc has built a great firm in a very thoughtful way," says AIG SunAmerica's Gamsin."He is good at building teams and attracting management, which has enabled him to move through the investment cycle and allocate capital."
Lasry and Gardner complement one another.Lasry is the gregarious, more optimistic big-picture guy with loads of energy who loves schmoozing.
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Lasry has an eclectic mix of interests, ranging from basketball to chess to perhaps his prize possession -- a collection of more than 2,000 comic books, including the first issues of Superman and Batman.Like most successful hedge fund managers, Lasry has his share of toys, including a black Ferrari he plans to garage at the 17-room house in Westport, Connecticut, that he bought in 2005 for $14.7 million and that he is having renovated.But investors say Lasry is remarkably down-to-earth.His natural friendliness and calm way of speaking further boost his credibility.
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Nonetheless, Lasry is fiercely competitive, whether playing cards, basketball or tennis.He likes to win and delights in setting up tournaments to declare a champion, even betting on an otherwise friendly Ping-Pong game."If he beat me for 100 bucks, he would be thrilled," Oaktree's Karsh jokes."He'll keep me up until 2:00 in the morning playing gin.He loves to compete."Lasry likes to host winner-take-all card games in his town house, where the stakes can get as hig
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