Elliott Is Said to Eye Push Into Hot Wall Street Debt Trade

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(Bloomberg) -- Hedge fund Elliott Management Corp. is looking to expand its business in Wall Street’s hottest debt market.

The firm is considering packaging riskier corporate loans into bonds known as collateralized loan obligations, according to people familiar with the matter. The $35 billion hedge fund is building a team to assemble the deals and enlisted Brian McNamara, formerly at GoldenTree Asset Management, as a consultant to help with the effort, the people said. The plan is tentative and Elliott may yet elect not to proceed, said the people who asked not to be identified discussing a private matter.

Elliott is looking to get a share of a market where global demand for yield is fueling red-hot sales. The firm’s entry as an issuer -- it already invests in the bonds themselves-- brings it in line with other hedge funds Och-Ziff Capital Management Group and King Street Capital Management as well as asset manager BlackRock Inc. It also comes as the biggest voices in credit are warning that corporate debt may beget the next wave of financial pain, just as investors lament erosion in their protections on CLOs and their underlying loans alike.

A representative for Elliott declined to comment.

Elliott’s push comes as record first quarter sales of $37 billion show few signs of abating. Insurers and pension funds globally are buying the notes because they track interest rates, meaning the securities benefit as benchmarks rise. Sales will likely get a further boost after a U.S. appeals court quashed regulatory rules that had made them more expensive to put together.

CLOs buy leveraged loans and bundle them into securities of varying risk and return. Other hedge funds that have issued them include BlueMountain Capital Management LP, Anchorage Capital, Marathon Asset Management, Sound Point Capital and Telos Asset Management.

Elliott Management, which was started by Paul Singer in 1977, has expanded into investment strategies like private equity as its assets under management have grown by around 60 percent over the last five years alone. It’s also increased personnel by more than a third over that span. The onshore version of Elliott’s flagship fund generated an 8.7 percent return last year. In his four-decade career as a hedge fund manager, Singer has only posted two years of losses.

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