Solus Alternative Asset Management, one of the best-known specialists in troubled investments, is closing its flagship fund after suffering a combination of heavy redemptions and poor performance.
The hedge fund, which still managed $ 4.3 billion in assets in November, is one of the first victims of a collapse in the price of riskier assets this week. In a letter to investors of its Sola vehicle on Tuesday, the company offered them the option of moving their investments into new funds or facing an “orderly liquidation” that would return their funds “as soon as possible.”
“Due to market developments, this has left our flagship fund Sola with a high concentration of less liquid assets,” the letter said.
The Financial Times reported in December that Sola suffered heavy losses after making a number of bad bets on companies such as satellite operator Intelsat and Pacific Gas and Electric. The fund ended the year down more than 8%, after falling 15% in 2018. It had assets of around $ 4 billion at the end of the year.
Solus’ letter to investors said “unexpected withdrawal requests” followed reports of the company’s difficulties in the financial press.
The company declined to comment.
Solus has become one of the most high-profile distressed investment firms in the United States after its clash with Toys R Us employees in 2018 and a derivatives legal battle with a Blackstone-owned hedge fund, GSO. Capital Partners.
Today, however, he has fallen victim to a series of corporate collapses that have stumbled struggling US investment funds looking to profit from buying stocks and bonds from the United States. distressed businesses at bargain prices.
Shares of Intelsat, a heavily leveraged satellite group popular with hedge funds, collapsed as much as 75 percent in November after a US regulator rejected plans to raise funds by selling its airwaves. Some of the company’s bonds are now trading at around a third of their face value as bondholders prepare for a potential write-off.
The shares of two of Solus’ other holdings, US miner Contura Energy and offshore drilling services group Hornbeck, both fell about 90 percent last year.
A January investor report showed that 22% of Sola’s exposure was to “energy equipment and services” companies: a sector that has been hit by growing investor distaste for fossil fuels and, more recently, a sharp drop in the price of oil.
Many other distressed specialists are worried about bets on energy-related companies going sour. Blackstone’s GSO faced breaks in its struggling investment unit last year, for example, in part due to bad bets on struggling oil and gas groups, such as Oklahoma-based Tapstone Energy. .
Investors who stay with Solus face two options.
They can move on to what the company calls a “long-term opportunities” fund that seeks to invest in lightly traded assets. Alternatively, they can block their investments until 2021, when Solus will sell its illiquid holdings and reinvest the proceeds in more easily tradable assets.