BOSTON - While there is no lack of supply of distressed and bankrupt securities in the marketplace, the demand for these securities might be shrinking, according to The Turnaround Letter, published by New Generation Research Inc.
Not only has a fairly large hedge fund begun to liquidate its holdings, Fidelity Investments has decided to end its investments in troubled companies and has announced the resignation of the three investment professionals who guided the firm's effort; and well-known distressed securities investor Michael Price has engaged in discussions with parties interested in buying all or part of his firm, Heine Securities, Short Hills, N.J., investment adviser to the Mutual Series Funds.
While the motivations vary from Fidelity's desire to take a less aggressive posture to what some say is Mr. Price's desire to cash out while mutual funds are hot and invest the proceeds on his own, the effect is the same. The demand for troubled securities will fall in the coming months.
Still, the bottom-fishers that are out there should fare well, according to The Turnaround Letter. Prudential recently formed a mutual fund to invest in distressed stocks and bonds, and T. Rowe Price Associates is in the process of raising $100 million to $150 million for its second distressed securities limited partnership, Recovery Fund II.
The first, raised in 1988, included such investors as the pension funds of Warner-Lambert Co., Textron Inc., Hughes Aircraft Co., Northern States Power Co. and Dayton Hudson Corp.; the Delaware State Employees' Retirement Fund; and the endowments of the University of Chicago, Smith College and Bowdoin College.
Two other investment groups have raised more than $1 billion to invest in distressed debt.