On the panel were Victor Khosla – Founder & Chief Investment Officer, Strategic Value Partners (SVP), Robert Koenigsberger – Founder & Chief Investment Officer, Gramercy Funds and Andrew J. Herenstein – Founder, Managing Principal, Monarch Alternative Capital. It was moderated by Lawrence Delevigne – Journalist, Thomson Reuters.
More information on Victor Khosla, Robert Koenigsberger and Andrew J. Herenstein
Victor Khosla’s Strategic Value Partners (SVP) is a USD 7.8bn AUM global alternative investment fund focussed on distressed and deep value opportunities.
Robert Koenigsberger’s Gramercy is an emerging markets investment manager across a range of asset classes and strategies, with USD 5bn AUM.
Andrew J. Herenstein’s Monarch Alternative Capital is a US investment fund with offices in London and New York. Founded in 2002 It specialises in distressed debt and bankrupt companies and has USD 4.6bn AUM.
Moderator Lawrence Delevigne: “What makes you different?”
Robert Koenigsberger from Gramercy:
- Last 32 years in emerging markets (“before they emerged”).
- Last 21 years at Gramercy involved doing both distressed and corporate strategies.
Andrew J. Herenstein from Monarch:
- USD 5bn exclusively invested in distressed debt.
- “What makes us unique is that we find opportunities throughout the cycle”.
- Look at global opportunities, including Asia and Europe, and also non-corporate opportunities, such as distressed real estate or distressed sovereign debt.
Victor Khosla from SVP:
- “What makes us different? We are not just a paper investor anymore. We now take control 51% ownership of companies.”
- “We have found there is a lot of low-hanging fruit in businesses when they go bankrupt.”
- “The second thing is we set up an office in Europe, half our team is there. Europe is large, growing and inefficient. We LOVE inefficient.”
Moderator Lawrence Delevigne: “You are the guys who are running to it when everyone else is running away. What you are seeing in terms of great contrarian bets today?”
Andrew J. Herenstein from Monarch:
- “One of the most interesting investments we made this year: we bought a loan that was secured by 80 retail properties.”
- Today own 5.5m sqft of empty retail space in the mid-West (and other parts of the US – inaudible where exactly).
- “That is a VERY contrarian investment opportunity.”
Victor Koshla from SVP:
- “Something we have done in the last five years is infrastructure. Toll roads, waste energy. You wouldn’t think of them as distressed, because they are monopolies, but they are levered up. When they started to break it was not something that most people in the distressed business thought about. The sellers were mostly European banks. We invested 3.5 to 4bn, mostly toll roads. We own a toll road in Portugal, which had 1bn in debt, we bought 700m of the debt.
- “Not something you normally think of. Off the radar. You have got to be able to think outside the box.”
Robert Koenigsberger from Gramercy:
- Emerging market debt is now five times larger than it was in 2010.
- Emerging market corporate debt is now bigger than US high yield.
- Funds investing in this have gone from 90 days liquidity to 1-3 days.
- “When there are outflows out of emerging markets there is huge disallocation risk.”
- “Start to identify what the disallocation could look like, and start to underwrite them now!”
- “I believe people do not understand how illiquid debt can be. Argentina was trading at 85 on Friday and 40 on Monday.”
Lawrence Delevigne: “What is your favourite single investment right now?”
Robert Koenigsberger from Gramercy:
- “Argentina is the gift that keeps on giving.”
- “Argentinian sovereign bonds. Went to 40, went back to 120, now back at 40.”
Andrew J. Herenstein from Monarch:
- Hexion, a chemical manufacturer, just emerged from bankruptcy.
- “Non-CUSIP type deals”, because less eyeballs on these transactions.
Victor Khosla from SVP:
- Toll roads. Not listed.
- Recommendation: read Jamie Dimon’s and Warren Buffett’s annual letters!
Lawrence Delevigne: “What is the biggest bubble right now?”
Victor Khosla from SVP:
- Corporate debt.
Robert Koenigsberger from Gramercy:
- Emerging market debt.
Andrew J. Herenstein from Monarch:
- Corporate debt.
“What were your biggest mistakes?” The final question for Victor Khosla, Robert Koenigsberger and Andrew J. Herenstein
Andrew from Monarch:
- “One overriding theme when we make a mistake is that we don’t have the control we think we have over the process.”
Robert Koenigsberger from Gramercy:
- “The use of leverage. For 20 years I didn’t use leverage. In 1 year I did, in 2007. I’ll never do it again. Fortunately, we were able to rescue-finance ourselves, by going to our Limited Partners and asking for more money.”
Victor Khosla from SVP:
- Mentioned one specific case where they invested in debt, converted to equity, and then saw the equity dramatically lose value after it was listed on the stock market. The stock is now allegedly 4-5 times cheaper than its listed peers. Operationally, the company is in safer waters now. I am keeping this particular idea for a potential publication on my own website, www.undervalued-shares.com (see section in the introduction).
