Marathon Starts Second Distressed Europe Fund After Debt Rallies

Jan 27, 2014 7:08 pm ET

Jan. 27 (Bloomberg) -- Marathon Asset Management LP started a second fund focused on distressed assets in Europe after debt of Greece and Ireland led returns in fixed-income markets last year.

The $11 billion New York-based hedge fund run by Bruce Richards began its Marathon Europe Credit Opportunities Fund II with $530 million on Jan. 15, Chief Operating Officer Andrew Rabinowitz wrote in a letter to investors. The fund will invest in mortgage-backed securities, non-performing loans and distressed corporate bonds, among other assets, according to a person with knowledge of the strategy.

Marathon is among U.S. hedge-fund managers and private equity firms from Blackstone Group LP to KKR & Co. that are hunting for discounted assets in Europe as banks comply with tougher banking rules that can make it more expensive to hold them.

Even as the bond market worldwide lost 0.3 percent last year in its first annual decline since 1999, Greek bonds soared about 57 percent and Irish debt rallied about 12 percent as Europe recovered from its sovereign debt crisis, Bank of America Merrill Lynch index data show.

The first Marathon fund for Europe, started in 2011 with $100 million in assets, returned 11 percent last year following a 22 percent increase in 2012, said the person, who asked not to be identified because the firm is private. The funds are similarly structured, except that the new vehicle doesn’t limit its allocations in illiquid assets to 50 percent.

Ryan FitzGibbon, a spokeswoman for Marathon, declined to comment on the new Europe fund.

Blackstone, the world’s largest private-equity firm, Apollo Global Management LLC, and KKR are vying for European investments as the region’s banks seek to offload a record 60 billion euros ($82 billion) of bad debts at discounts of as high as 95 percent, according to PricewaterhouseCoopers LLP.

Lenders will sell 300 billion euros of distressed loans through 2018, more than double the approximately 125 billion euros they have sold since 2010, according to PwC.

--With assistance from Alastair Marsh in London and Christine Idzelis in New York. Editors: Alan Goldstein, Shannon D. Harrington