James Hanbury, the former Odey AM Portfolio Manager who moved with his fund and team to Lancaster Investment Management in July, is betting against private equity, in the belief that falling company valuations and rising interest rates will prove a toxic mix, according to a report by Reuters.
The report cites a letter seen by Reuters as highlighting that Hanbury believes private equity firms will struggle to finance and refinance deals as a result.
In the firm’s September investor letter, Hanbury and fellow Lancaster PM Jamie Grimston wrote: “We see an increasing probability that private equity’s problems cause considerable collateral damage to the rest of the economy”.
The pair are reportedly focusing their attentions on companies with debt maturing in 2025.
According to the letter, the £385m WS Lancaster Absolute Return Fund, which returned 4% in September but remains down 4.7% YTD, currently has its main short positions in the Russell 2000 index, of which 40% of the companies are loss-making.
Now that the fund has migrated to Lancaster from Odey AM and established new prime brokerage relationships, short positions on single named stocks may be now also be added, according to the letter.
