Investcorp Joins Rush to Invest in European Distressed Debt

Investcorp, the Bahrain based investment firm, made a splash investing in European luxury brands like Gucci and George Jensen.

Now, it is making a play for distressed investments by partnering with the hedge fund Eyck Capital Management.

Through its $5 billion hedge fund arm, Investcorp has agreed to put $50 million to $100 million of capital behind a fund started by Khing Oei, a former managing principal at Halcyon and founder of Eyck Capital.

Investcorp is joining many other hedge funds and private equity firms looking for opportunities to scoop up European companies slowly emerging from a continent-wide financial crisis.

The amount of money deployed to the region is eye-popping: This year alone, private equity has raised $1.7 billion for European distressed funds, while hedge funds focused on European distressed debt manage a total of $57.2 billion of investor money, according to data from Preqin.

“We think that there are tremendous opportunities in Europe right now,” says Lionel Erdely, chief investment officer of Investcorp’s hedge fund arm. Recent changes to the regulatory landscape, have forced banks to sell assets like real estate and corporate loan portfolios in order hold more cash on their balance sheets.

In Spain, several hedge funds and private equity firms, including Blackstone and Apollo Global Management, have competed to buy everything from hotels to real estate. Marathon Asset Management and Third Point have bought non performing loans and mortgage-backed securities in countries ranging from Germany to Greece.

But some critics argue that Europe has become overcrowded, with investors armed with lots of cash and still too few opportunities to put their money to work. At one recent auction by a Spanish bank, 30 bidders competed for one asset, according to Mr. Khing.

“It’s hard to create an edge there,” he says, adding: ” You need a lot of patience and that space has been busy.”

Mr. Khing has focused instead on situations where information is harder to obtain. Last year, Eyck sold insurance on bonds for Banca Monte dei Paschi di Siena, the world’s oldest bank. At the time investors were panicked the bank would collapse. Eyck spotted an opportunity in the fine print (in Italian) on the bonds and ended up with a rare windfall that leaves some investors cold.

“In my mind, the recovery in Europe is not super clear,” says Mr. Oei. “I do think it’s very important to pick your battles.”