Anchorage Capital Partners, the
low-profile, New York–based hedge fund firm founded in
2003 by Goldman Sachs alums Kevin Ulrich and Anthony Davis,
continued its strong run of performance in 2013.
The firm posted a 20.85 percent net gain for the year; this
came on the heels of a 16.44 percent profit in 2012, according
to the hedge fund firm’s year-end report obtained
by Alpha. This compares with a 14 percent return for
the average distressed fund in 2013 and 14.75 percent in 2012,
according to industry tracker eVestment.
The hedge fund firm focuses on the credit, special
situations and illiquid investment markets primarily in North
America, Europe and Australia. In its year-end report recently
sent to clients, Anchorage, which manages $12.4 billion,
attributes three quarters of its 2013 performance to its
portfolio of distressed and formerly distressed companies. In
many cases it bought the distressed debt at steep discounts and
restructured the positions into deleveraged private
More specifically, the firm notes that credit strategies in
general gained 6.26 percent and 11.4 percent in 2013 and 2012,
Anchorage tells clients that the core of its distressed
portfolio is composed of assets acquired through debt
restructurings led or influenced by Anchorage over the
2009–2010 private distressed cycle. Its
structured-credit portfolio also did well, thanks to the
strengthening of the collateralized loan obligations market and
low overall default rate. At the same time, the firm maintained
a large net-short exposure to performing credit.
In the letter to investors, Anchorage also said it recently
launched the fourth vintage of its Anchorage Illiquid
Opportunities funds, which seek to target smaller and
less-followed illiquid situations. In addition, it closed its
second cash-flow CLO, which focuses on syndicated corporate
"These products contribute to the flow of information
throughout the firm, from the least liquid to the most liquid
situations, and further enhance our ability to analyze
fundamental and technical dynamics affecting specific sectors
and individual companies’ capital structures,"
Anchorage explains in the report.
Before founding Anchorage, Ulrich, who serves as chief
executive officer and portfolio manager, previously ran the
proprietary-debt trading operation at Goldman. Davis, who
serves as president, was a special situations investor and
investment banker at Goldman. Daniel Allen, a senior portfolio
manager and partner, joined the firm in 2008.
In 2013, Metro-Goldwyn-Mayer Studios was the
fund’s largest position and largest contributor to
performance, accounting for 5.4 percent of the gain. Anchorage
had earlier bought MGM debt at a steep discount. Movie and TV
studio MGM is best known for its rich film library that
includes Rocky, Rain Man, Dances with
Wolves and Midnight Cowboy. The company emerged
from bankruptcy in late 2010.
Today Anchorage owns the largest stake in the company, which
remains privately held but is reportedly mulling an initial
public offering of stock for sometime this year.
"We believe the discount embedded in our position remains
substantial, given the company’s unlevered capital
structure and the valuations of comparable businesses,"
Anchorage says in its letter.
Anchorage also enjoyed solid gains from publishing company
Houghton Mifflin Harcourt, which went public in the fourth
quarter. "Despite this liquidity event, we do not anticipate
exiting our position in the near term — in fact, we
increased our position in the offering," Anchorage states in
It also enjoyed "significant returns" from investments in
real estate and land development companies, including Newhall
Land, formerly known as LandSource.
Anchorage also points out that although new U.S. distressed
opportunities were limited in 2013, it helped TXU Energy, the
troubled electrical utility, avoid bankruptcy before its
looming default date. "We were able to structure a transaction
that had substantial upside if the company did not default
before December 20th, as it ultimately did not," it notes. "We
believe this highlights our ability to use our investment,
restructuring and trading expertise to participate in
distressed situations using a range of tools to identify
Although Anchorage’s short book lost money,
several investments did work out well. It made money betting
against the collateralized debt securities of J.C. Penney Co.
when the embattled retailer was forced to raise equity and
Anchorage also tells clients its strongest-performing short
theme was in monoline bond insurers, including MBIA and Assured
Guaranty. It also said it was early to assessing Puerto
Rico’s deteriorating credit fundamentals.
Looking ahead, Anchorage sees several trends carrying over
into 2014. It cites further improvement in developed markets,
the Federal Reserve’s continued support for
riskier assets and modestly rising interest rates. "The
continuation of relatively benign conditions should benefit
ACP’s portfolio, given that accommodative U.S.
credit and equity markets support our ability to provide
catalysts to increase value in our post-restructured
positions," it adds.
In the fourth quarter it added additional exposure across
all categories, including the distressed, structured-credit and
performing-credit asset classes.
"U.S. and European economic fundamentals seem poised for
continued improvement, which may contribute to reduced credit
volatility and an ongoing low default environment," Anchorage
tells clients. It concedes that a low-yield and tight spread
environment would constrain returns for traditional long-only
credit managers. However, the hedge fund firm believes this
environment would continue to boost its restructured and
event-driven equities portfolio.