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Alternative Market Briefing

GLG Distressed Hedge Fund Manager says Profits Lie in Getting Distressed in Times of Stress

Tuesday, January 31, 2012

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Galia Velimukhametova
By Beverly Chandler, Opalesque London:

Galia Velimukhametova, Portfolio Manager at GLG, managing distressed strategies has written a paper entitled 'In times of stress, get distressed; the asymmetric return profile of distressed securities.’

Velimukhametova defines 'distressed investing’ as the purchase of securities in corporations that are unlikely to meet their debt obligations. Depending on the level of distress in the companies, from bankruptcy to near bankruptcy, the securities often trade at a significant discount to their par value which makes them an attractive investment proposition as substantial profits can be raised through receipt of a higher settlement during the liquidation process or by accepting a stake in the restructured business.

"Investing in a business that is close to bankruptcy does not sound like a particularly intuitive strategy. However, as Alumni Award Winner Charles Gradante once observed, "The key to distressed companies is that they all have bad balance sheets, but they could have either good or bad business models". Consequently, an important aspect of the distressed philosophy is to recognise that companies with unsustainably weak balance sheets, stemming from financial mismanagement, can actually be operationally sound and potentially profitable businesses" writes Velimukhameto......................

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