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Hedge Fund Chatham Weighs Shutting $763 Million Liquid Alts Unit

Hedge Fund Chatham Weighs Shutting $763 Million Liquid Alts Unit

(Bloomberg) -- Chatham Asset Management, the $4.3 billion credit hedge fund, is weighing the closure of a unit that manages $763 million for clients including mutual fund giant Franklin Templeton Investments.

Chatham, founded by Anthony Melchiorre in 2003, is pondering the move for its so-called liquid alternatives unit while continuing to raise money for other funds that lock up capital for several years, according to people with knowledge of the matter, who asked not to be named discussing the deliberations. The liquid alts unit, in contrast, lets clients exit on a daily basis and focuses on the “higher-quality segment of the high-yield market,” according to a recent marketing document.

Four Franklin Templeton mutual funds that farm out money to other managers have collectively invested about $360 million with Chatham, according to the most recent data available on Franklin’s website. Franklin has been an investor with Chatham since 2013. The Chatham unit also counts mutual fund company Highland Associates and another, undisclosed institution as clients.

Representatives for Chatham, Franklin and Highland declined to comment.

One of Chatham’s thematic bets has been on old-school media companies. Its largest wager in the sector is on American Media, the parent of the National Enquirer, the controversial tabloid that’s being sold to the owner of Hudson News. A person familiar with the situation said earlier this year that Chatham holds almost all of the $622 million of zero-coupon bonds issued by American Media’s parent company, which trade infrequently. The firm also owns the securities of newspaper operator McClatchy Co. and Canadian media company Postmedia Network Inc.

Franklin and Highland together own about $74 million in face value of the American Media bonds, or 12% of the issue, according to the mutual fund companies’ most recent regulatory filings and online disclosures. Some $58 million of that is spread across four Franklin Templeton funds, the filings show, making the debt among their biggest holdings. The balance is held separately by the Highland Resolute Fund.

Chatham has been building up its private-credit and longer-term vehicles. It raised its second private-debt fund this year, with the two funds managing about $625 million in all. And last week it told investors it plans to launch an offshore feeder into its second fund on July 1.

Since 2017, Chatham’s assets under management have increased by approximately $1.6 billion, 80% of which is locked up for anywhere from three to seven years, according to Chatham. Investors in the firm’s hedge fund can exit quarterly.

--With assistance from Neil Weinberg.

To contact the reporters on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net;Shahien Nasiripour in New York at snasiripour1@bloomberg.net;Katherine Burton in New York at kburton@bloomberg.net

To contact the editors responsible for this story: Alan Mirabella at amirabella@bloomberg.net, David Scheer, Alan Goldstein

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