Quarry Point Partners, a hedge fund founded by two Banc One Capital Markets high-yield pros, is looking to invest in bank debt and bonds, according to Alternative Investment News, an LMW sister publication. The strategy will be a long/short high-yield fund with a heavy capital structure arbitrage concentration in the first quarter.
The Chicago firm believes that the high-yield market currently has more downside risk, making a long-only play more volatile. "Being long-only in high-yield is not a winning hand to play," said Roger Gordon, formerly head of global high-yield research at Goldman Sachs and most recently head of high-yield research at Banc One. He is working with Barry Schwartz, who was head of high-yield trading and sales at Banc One.
The firm is currently seeking seed capital and hopes to launch with $50 million. Quarry is committed to building an infrastructure to accommodate $500-750 million, said Gordon. The fund, which is being pitched to institutions and funds of funds, has a capacity of up to $1.5 billion.
The lion's share of the fund, roughly 66-70%, will be dedicated to capital structure arbitrage with the fund investing solely in non-distressed high-yield credits. Distinct from many capital structure arbitrage funds that employ a paired trading strategy, it will focus on intra-credit bets with bonds and bank debt, explained Gordon. This is a lower volatility play that will hedge out most of the credit risk, he added. Quarry is unconcerned about being on the public side of the loan market as it will invest in non-distressed issues, where this distinction is less relevant, said Gordon.
The fund will also have a 15-30% bucket dedicated to credit directional trading. Quarry will take long and short positions with significantly higher return potential than in the capital structure arbitrage portion, said Gordon. There will also be a small opportunistic portfolio where Swartz will make short duration trades.
