Investors earmark billions for distressed deals
LONDON (Reuters) - Investment firms are beefing up their restructuring departments in expectation of a multi-billion-dollar wave of spending on distressed securities once the market bottoms out, a senior banker at Morgan Stanley (MS.N) said.
"People are looking at a lot of situations right now. They're doing a lot of work, deciding which are the ones they believe are most attractive," Ben Babcock, EMEA head of restructuring, told the Reuters Restructuring Summit on Thursday.
"But they are waiting for what they think is a better time to commit capital ...The question investors are asking is: why today? ... Why isn't it better value six months from now?"
Private equity firms "whose roots come from a more distressed environments" and managers of special situation funds are most likely to invest in distressed deals, Babcock said.
Large institutional investors such as pension schemes are unlikely to do so directly. Their allocations would rather be made through investment managers, if at all.
Babcock, who joined Morgan Stanley earlier this month from Merrill Lynch, however said he could not forecast when managers would start pouring cash into distressed assets.
Managers will not part with their billions until they can see that a market recovery is on its way, and their approach will be on a case-by-case basis, he added.
Derek Stewart, chief executive of Mellon Global Alternative Investments, part of the Bank of New York Mellon (BK.N), echoed Babcock's comments.
"Managers feel that there's no rush to put capital to work today, when markets are so volatile and there's a significant risk things will just get marked down again," he said.
"But they have identified a lot of candidates and they've set target prices at which they think they would like to buy."
He declined to put an estimate on the amount of money still on the sidelines.
Babcock said restructuring specialists are preparing for a pickup in their business by hiring or relocating specialists from other divisions.
He added Morgan Stanley had not raised its restructuring fees as a result of the deteriorating corporate outlook.
"The fee pool is growing because the restructuring market is growing," he said.
(Additional reporting by James Molony; editing by John Stonestreet)
