Financial Times – MatlinPatterson hires former KeyCorp team
By Henny Sender in Hong Kong, November 8, 2010

MatlinPatterson, a $9bn asset manager specialising in distressed assets, is hiring a credit investment team that formerly worked for KeyCorp, the US bank, people familiar with the matter said.

The transaction highlights the transformation of asset management as banks retreat from proprietary investing in response to the new US financial reform law, and more lightly regulated firms try to take advantage of the situation by recruiting talent.

“We are clearly seeing the deconstruction of proprietary desks and sub-scale hedge funds around the world,” says the chief executive of one credit hedge fund operation, speaking generally.

“If you are under $3bn, you need to sell yourself to survive. And opportunistic independent asset managers will be the beneficiaries.”

In recent months, Kohlberg Kravis Roberts, the private equity firm, has bought a “long-short” equity team from Goldman Sachs, while its rival, Blackstone, plans to add $1bn to its strategic alliance fund so it can put money behind teams of traders as they leave banks.

MatlinPatterson was founded in 1994 within Credit Suisse and established as an independent entity in 2002.

It owns a diverse group of companies including homebuilder Standard Pacific, Flagstar Bank and Foamex.

In the past, it has made hundreds of millions of dollars from investments in WorldCom and Huntsman.

The team from KeyCorp, which is headed by Craig Ruch, is expected to invest in both corporate credit and municipal debt on behalf of MatlinPatterson, said people familiar with the matter.

While he was at KeyCorp, Mr Ruch oversaw almost $20bn in debt investments. He was also in charge of KeyCorp’s Absolute Return Credit Strategy fund, which had a total return of 78 per cent from the time it opened in June 2008 through to the end of June 2010.

Last year, Mr Ruch was able to generate more than 30 per cent returns by buying the bonds of companies such as Georgia Pacific and ArcelorMittal as the price of their debt rose on the back of reduced borrowings and improved fundamentals.

The hiring of the KeyCorp team comes as corporate credit markets are thriving. Low interest rates have made it easy for companies to service their debt.

Meanwhile, investors who have been starved of higher yields have fuelled a huge rally in the junk bond market for lower-rated companies.