The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds

Chapter 4

Distressed Debt’s Value Seekers

Marc Lasry and Sonia Gardner

Avenue Capital Group

You need to understand how a company’s going to operate in the bankruptcy process and how that’s going to affect its ongoing operations. You’ve got to mesh many different disciplines into one. That’s our edge. We have the expertise to understand those different disciplines better than others.

—Marc Lasry, February 2011 interview

By December 2008, Lehman Brothers had filed for Chapter 11, pushing the financial system to the brink of collapse. Freddie Mac and Fannie Mae had been put into conservatorship, and, despite an $85 billion loan from the Federal Reserve, AIG faced the prospect of liquidation. TARP was passed into law, giving the Department of Treasury $700 billion to attempt to avert an even worse financial crisis, and yet there was considerable doubt that this would be sufficient. With the Dow Jones Industrial Average down more than 30 percent, Marc Lasry faced one of the toughest decisions of his career. Was this the right time to commit capital to new investments? Were asset valuations close to bottom, or would macro conditions deteriorate further?

For Lasry, chairman and CEO of Avenue Capital Group, one of the pioneering investors in distressed assets, it was a pivotal moment. Avenue focuses on undervalued opportunities investing in public and private bonds, bank debt, post–reorganization equities, trade claims, and other securities of companies under financial distress, but if ...