Fri, 13/06/2008 - 06:59
Mitsubishi Corporation invested USD39m last month to acquire a 19.5 per cent stake in Aladdin Capital Holdings, an alternative investment manager specialising in fixed-income hedge funds and collateralised debt obligations with USD17.5bn in assets under management. In this interview, Aladdin Capital chief executive Aminkhan Aladin explains why he believes the hedge fund industry is on the brink of another round of expansion.
HW: What is the background to your company?
AA: Established in 1999, Aladdin Capital Holdings, through its subsidiary companies, is a global alternative investment management firm focused on non-traditional fixed income based strategies, with a dominant position in the CDO sector.
Aladdin's broadly diversified investment platform is comprised of teams with multiple specialties including high-grade bonds, high-yield bonds, leveraged bank loans, asset-backed securities, credit default swaps and structured credit investments.
This core global credit expertise is provided by a group of 86 investment and support professionals globally through a product suite that includes credit-focused hedge funds, 22 collateralised debt obligations and separate accounts totalling USD17.5bn in assets under management at the end of March.
HW: What are your key strategies and teams?
AA: The following are a representative list of products under management, and the teams that manage these products. The Aladdin Relative Value Credit Fund was launched in January 2005, and its portfolio managers are senior managing partners John Brewer and Andrew Torres and managing director Paul Katz.
Before joining Aladdin, Brewer was chief investment officer and managing partner at Fusion Asset Management, having previously been a managing director and head of European credit trading at Bank of America Europe. Earlier he was head of corporate bond and credit default swap trading at Goldman Sachs Europe, having begun his career at JP Morgan in credit sales.
Torres was previously vice-chairman and global head of credit trading at the TD Securities arm of Toronto Dominion Bank, with overall responsibility for a USD12bn proprietary credit trading portfolio. Previous roles at TD included three years as global head of structured trading based in London, and two years as head of US investment grade trading based in New York.
Katz was co-head of high yield bond and credit default swap trading at Goldman Sachs International, during a decade trading credit that included five years as head of the banks and financials desk. He began his career at Swiss Banking Corporation trading foreign exchange.
The Aladdin Opportunity Fund, which is expected to be launched in July this year, has as portfolio managers senior managing directors Nunzio Masone, Anatoly Burman and Martin Devito.
Masone was previously a senior portfolio manager at AIG Global Investment Corporation, where he managed the residential mortgage-backed and asset-backed securities credit portfolio. Before joining AIG, he structured and sold RMBS and ABS with GMAC-RFC, the largest issuer of such securities in the world, and underwrote RMBS and ABS deals for PaineWebber and Prudential Securities. Masone has also advised financial institutions on the use of insurance as a form of capital while at Aon Risk Services.
Burman was a vice-president at AIG/SunAmerica, where he was responsible for managing a multi-billion-dollar asset-backed portfolio for securities lending, life companies, and total return portfolios. Asset classes included public and 144a credit cards, auto loans and leases, equipment receivables, home equity and manufactured housing loans, and other receivables. Previously he sold securities, created new collateralised mortgage obligation structures, and product innovation as a managing director with W.J. Mayer.
Devito was a CMBS portfolio manager at AIG Global Investment Corporation, where his responsibilities included investment analysis of CMBS transactions as well as all trading of the portfolio. He started managed the CMBS portfolios globally in 2001 and was the lead portfolio manager for Cimarron CBO, a high grade ABS CDO that closed in December 2004. Earlier Devito was a trader at Beacon Hill Asset Management focusing on below investment grade structured credit, and from 1996 to 1998 he was a senior credit analyst at Hyperion Capital Management.
The portfolio managers of the Aladdin Flexible Investment Fund, which was launched in January this year, are senior managing director Joseph Moroney and managing director John D'Angelo.
Moroney was previously a vice-president and credit analyst for Merrill Lynch Investment Managers, where he was responsible for analysing and monitoring primary and secondary leveraged loan and bond credits in the technology, metals and mining, textile and apparel, electric utility, environmental services and general industrial sectors, overseeing assets exceeding USD1.5bn and assisted in managing and monitoring Merrill Lynch's USD500m collateralised loan obligation. Earlier he analysed and reviewed credits in the private placement unit at Metropolitan Life Insurance.
D'Angelo joined Aladdin from Harbinger Capital Partners, where he was a senior analyst focusing on distressed credits. Previously he was a vice-president and senior credit analyst at ING Capital Advisors, where he was responsible for several sectors for its 12 CLOs and private accounts representing more than USD5.5bn in leveraged loans and high-yield bonds. He also performed due diligence on potential leverage loan instruments and monitored existing positions in the leverage banking divisions at CIBC World Markets.
HW: Who are the principals of Aladdin Capital?
AA: I am president, chief executive and founder of Aladdin Capital Management. Before founding Aladdin, I was a managing director of international fixed income at Donaldson, Lufkin & Jenrette, having previously been general manager for international fixed income at Smith Barney. I began my Wall Street career at Morgan Stanley in 1983, where I was a vice-president.
A senior managing director and co-founder of Aladdin, George Marshman was previously a vice-president and trader in Donaldson, Lufkin & Jenrette's corporate bond department. Earlier he was a vice-president at Lehman Brothers, focusing on new issue and secondary trading of floating-rate notes and structured securities. Marshman began his Wall Street career at Orion Consultants in 1989.
Before joining Aladdin, senior managing director Joseph Schlim was a senior vice-president at Donaldson, Lufkin & Jenrette. He worked in the corporate bond department and in
the high-yield structured products group, where he focused on the analysis and marketing of secondary and primary CDO securities. Previously he was at JP Morgan Securities.
Senior managing director Harumi Aoto was previously a senior vice-president in Donaldson, Lufkin & Jenrette's international fixed income department, where she dealt with Japanese clients globally on investment-grade fixed-income instruments in both the cash and derivative markets. Previously she was with the derivatives marketing team at HSBC, again serving Japanese clients. Aoto began her Wall Street career in 1990 at Lehman Brothers.
Dr Scott MacDonald, also a senior managing director, was chief economist and a director at KWR International, consulting for the Korean and Japanese governments and private sector investors. Previously he was director of sovereign research at Donaldson, Lufkin & Jenrette, having earlier been a sovereign analyst at Credit Suisse First Boston focusing on Asian sovereign and state-owned companies. MacDonald has also worked for the Office of the Comptroller of the Currency on Brady Plan debt reschedulings for Argentina and Brazil, and European and Canadian banking issues
Senior managing director Scott Harrington was previously manager of sales and client service at Vanderbilt Capital Advisors, a New York-based fixed income manager, having earlier been a senior vice-president at Houston-based energy investor Mitchell Group. He began his investment career in 1979 in the trust group at what is now known as Bank of America.
HW: Who are your service providers?
AA: Service providers differ for the products we manage.
HW: Is your partnership with Mitsubishi indicative of a trend among Japanese firms looking for alternative investment vehicles outside Japan?
AA: Japanese companies have considerable capital and are becoming more interested in investing in alternative investment vehicles. Thus far Mitsubishi is one of the first; we would not be surprised to see others, but in a gradual fashion.
HW: How and where do you distribute the fund?
AA: All of our funds are marketed/distributed globally to the institutional marketplace through our internal marketing and sales teams located in the US, London, and Tokyo.
HW: How do you generate ideas for your funds?
AA: Speaking generally, we have a very talented team of experienced portfolio managers, traders and analysts who are actively looking at the markets to come up with new investment ideas. This is a reflection of a more narrow sector approach as well as a macro approach.
HW: What opportunities are you looking at right now?
AA: We are actively pursuing the growth of our London-based Aladdin Relative Value Credit Fund, the Aladdin Opportunity Fund, and the Flexible Investment Fund, all of which are well suited to take advantage of the current dislocations in markets. We are also exploring the possibility of a distressed fund as we see default rates moving toward their historical average of 4.4 per cent this year and higher next year.
HW: What events do you expect to see in your sector in the year ahead?
AA: The hedge fund industry is at another turning point that could see another round of expansion. With the market upheaval, a lot of talented and experienced people are leaving the large firms. Despite the difficult market conditions last year, some 1,152 new funds were launched and 563 funds were liquidated, compared with 1,518 new funds and 717 liquidations in 2006.
At the same time, the hurdles to start up will be higher with everything from risk management and back office to strategies. Firms with scale and ability to find new opportunities will be more successful. This explains our enhanced relationship with Mitsubishi Corporation. That relationship is similar to the role being played by sovereign wealth funds, which are able to deploy capital through existing managers who are the ground sourcing new opportunities.
HW: How will these developments impact your own portfolio?
AA: We are actively engaged in the changing nature of the market through our funds, in particular in the Aladdin Relative Value Credit Fund, the leveraged loan area (Flexible Investment Fund) and Opportunity Fund.
HW: What differentiates you from other managers in your sector?
AA: We have demonstrated a solid track record since launch since 2000, while lot of other funds have not lasted. This derives from our global breadth and scope, with fully-staffed offices in Stamford, London and Tokyo. We provide investors with global investment solutions.
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