Singapore Hedge Fund

Alternative asset management in Singapore

Billionaire Modi Seeks Island Resorts in Distressed-Asset Quest

Billionaire Bhupendra Kumar Modi, who made his fortune from mobile-phone services in India, is planning to invest $100 million in distressed assets including the island resorts on Batam and Bintan neighboring Singapore.

Modi, chairman of Singapore-based Spice Global with interests from telecommunications to financial services, said he is in talks to buy stakes in all the resorts on the Indonesian islands and wants to transform them into entertainment hubs, flying in Bollywood stars and eventually adding casinos.

“There’s nothing near Singapore as beautiful as these two islands, but they are distressed,” the 60-year old said in an interview at his 63rd-floor penthouse overlooking the casino- resort being built by Las Vegas Sands Corp. “There are a lot of situations emerging where the actual asset is good, but it is distressed because the situation around it is not right.”

Modi, who last year moved from Beverly Hills to Singapore, is aiming to fill a gap left as firms such as Blackstone Group LP and Och-Ziff Capital Management Group LLC scaled back plans to buy distressed Asian assets. He has set aside $100 million for special situation investments, which seek to profit from events such as spin-offs.

He plans to invest with distressed specialists, including hedge-fund firm 3 Degrees Asset Management Pte and former traders from Lehman Brothers Holdings Inc. who are opening their own shop to take advantage of rising Asian corporate defaults.

3 Degrees

Modi earned 21 billion rupees ($434 million) selling his stake in Noida, Uttar Pradesh-based Spice Communications Ltd. to Idea Cellular Ltd. last year. He said he has a net worth of $1.5 billion to $1.6 billion and cash of $700 million to $800 million.

Spice Global is planning a $1 billion initial share sale, Modi said in June.

He plans to invest $20 million in a private-equity fund managed by 3 Degrees to buy a stake in a resort in Bintan through the Singapore-based distressed asset manager.

Modi said he seeks management control of the companies he invests in. He became chairman of the board of MediaRing Ltd. and replaced its chief executive officer and chief financial officer after agreeing to buy as much as 20 percent of the Singapore-based Internet telephony firm for about S$60 million ($42 million) last month.

The billionaire said he expects returns of more than 100 percent if he can change the way Bintan and Batam, 45 minutes from Singapore by ferry, are being run. He will engage policy makers in Singapore and Indonesia to develop infrastructure and promote more visitor arrivals there, he said.

Supply-Demand

About $1 trillion of corporate debt is stressed and distressed in Asia today, with only about 10 “substantially capitalized” distressed investing firms chasing it, according to Robert Petty, New York-based co-founder of Clearwater Capital Partners LLC, which manages a $1.7 billion fund of Asian distressed assets.

“The supply-demand mismatch is interesting,” he said. “Today is an extraordinary market opportunity if you have the depth of team to be able to do all dimensions of distressed.”

Bonds are termed distressed when they yield at least 10 percentage points more than similar-maturity government notes. Near-distressed or stressed bonds have yield premiums of between 7 percentage points and 10 percentage points.

Asia-focused distressed and event-driven hedge funds and private-equity firms manage about $67 billion in assets, according to Eurekahedge Pte, a Singapore-based data provider.

Record Defaults

Standard & Poor’s expects “record levels of defaults” in Asia as the global recession hurts the region’s export-dependent economies and leveraged industries, it said in a June 1 report. Nine rated borrowers defaulted in the first five months of the year, matching the peak of the region’s 1998 financial crisis, S&P said.

“There will be a shedload of money to be made in Asian distressed over the next 18 to 24 months,” said Michel Lowy, former head of Asia-Pacific Strategic Investment Group at Deutsche Bank AG, who has been investing in distressed assets for 13 years.

Lowy is starting SC Lowy Financial (HK) Ltd., a Hong Kong- based distressed investment business which will focus on the region, and will seek “all asset classes within the illiquid value investment space” including special situations and distressed. Investment opportunities in this area will likely peak in one to three years, he added.

Lowy said his most successful deal while at Deutsche Bank was the German firm’s investment and reorganization of Spice Communications. He declined to say how much the bank made because the information is private.

SSG Capital

Hedge-fund managers investing in Asian distressed debt returned 1 percent in the first eight months of 2009, according to Eurekahedge. Asia-focused event-driven funds gained 16 percent.

Edwin Wong, an ex-Lehman managing director, set up SSG Capital Management with former colleagues including Andreas Vourloumis to start a fund to invest in distressed assets in Asia outside Japan. Modi said he plans to co-invest with Vourloumis, who made money for Lehman investing in Spice Communications. Vourloumis was not immediately available for comment.

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Blackstone Cancels Plan for Asian Event-Driven Fund

May 15 (Bloomberg) — Blackstone Group LP, the world’s biggest buyout company, canceled a plan to start a hedge fund that initially aimed to invest as much as $1 billion in Asian companies affected by events such as mergers and reorganizations.

Blackstone decided not to proceed with the Asian event- driven fund “after a review of the market environment and our strategic priorities globally,” New York-based Blackstone spokesman Peter Rose said in an e-mail. The fund was to be managed by Blackstone A.M.N. Advisors.

Most of about 17 A.M.N. team members, including Chief Investment Officer Aaron Nieman, left after the March decision, said four people familiar with the matter, declining to be identified because the information isn’t public. The rest have been transferred to other Blackstone departments, they said. Rose declined to comment on specific personnel.

Global hedge fund assets slumped 31 percent by March from a mid-2008 peak as a result of the worst average annual return and record investor redemptions, according to Chicago-based Hedge Fund Research Inc. The number of hedge funds and funds of hedge funds fell for the first time in at least 19 years in 2008, the research firm’s data showed.

“Capital raising in these tight times, especially for funds with longer lockups, is very, very tough no matter how big you are and how good your story is,” said Paul Smith, a Hong Kong-based director at Triple A Partners Ltd., which provides startup capital to hedge funds. “Investors want transparency and liquidity and these are hard to provide in an event-driven fund.”

Scaling Back

New York-based Blackstone has been scaling back its hedge fund operations in the region, joining peers such as Citadel Investment Group LLC and Och-Ziff Capital Management Group LLC to focus on their biggest markets. Blackstone’s GSO Capital Partners LP unit, a manager of credit hedge funds, shut down its Asia investment desk less than four months after its opening in September, people familiar with the matter said in January.

“In this market environment where both capital and people are constrained, it is especially important to be disciplined in where you allocate resources to achieve the greatest return,” Rose said in the e-mail. GSO decided to withdraw from Asia to concentrate in Europe and U.S., where it saw greater opportunities in the short- and medium-term, he added.

Hedge Fund Push

Blackstone Chairman Stephen Schwarzman has pushed the firm he founded with Peter G. Peterson in 1985 deeper into hedge funds and merger advice to offset the decline in private-equity deals.

Blackstone announced the hiring of Nieman in May last year to start what was then named Blackstone Altius Advisors. The unit, later renamed A.M.N., planned to start its first Asia- focused event-driven fund on Oct. 1.

A.M.N. targeted as much as $1 billion for the fund, including $150 million committed by Blackstone and its employees over the first three months, said documents sent to investors in September.

The plan was delayed and the fundraising target reduced after the market downturn made it harder for hedge funds to raise money.

Funds seeking to profit from “corporate stress and balance sheet dysfunction” may indeed find better opportunities in U.S. and Europe, said Peter Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte. “Asia is, relative to the developed world, in much better shape.”

Asian event-driven investments may become more profitable later this and next year with rising corporate defaults, bankruptcies and reorganizations, Triple A’s Smith said.

Fewer New Funds

Globally, hedge fund starts dropped to 659 last year, the slowest since 2000, HFR said. By contrast, hedge fund liquidations jumped more than 73 percent to 1,471 in 2008 over a year earlier. Investors pulled a record $155 billion out of the industry last year and another $103 billion in the first quarter, HFR data showed.

In 2008, 75 new Asia-focused hedge funds raised a combined $3 billion, or $40 million each on average, according to London- based publication HedgeFund Intelligence. A year earlier, 116 such funds brought in $7.8 billion, or $67.5 million each.

Nieman and Kevin Cho, an A.M.N. senior analyst, are rejoining former employer SAC Capital Advisors LP in its Sigma Capital Management unit, said Jonathan Gasthalter, a New York- based spokesman for the hedge fund manager founded by billionaire Stephen Cohen.

Nieman was a portfolio manager and managing director at SAC, having built its first Asia-Pacific-focused event-driven fund, before leaving to join Blackstone, said the A.M.N. documents.

From Bloomberg

Jean Viry-Babel
senior partner
VBK partners

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