“Value impairment is at an all time high”

Gary Klesch, founder of the eponymous investment boutique, says distressed assets in Europe have mushroomed, already adding up to a $150bn investment opportunity.

Gary Klesch is looking forward to taking advantage of one of the biggest market opportunities he has ever come across. The London-based founder of Klesch & Company is preparing to raise a new fund to invest in distressed debt, a market which he says has got more to offer to savvy investors than ever before.

“Our view is that there will be a long, long period of value impairment affecting a lot of companies”, he says. “If it is a barometer of evidence, the number of phone calls we’re getting daily from investors wanting to invest in distressed, I would suggest it’s at an all time high.”

Klesch, who has spent nearly three decades in the business of investing in securities that trade at substantial discounts to their nominal value, believes the value of total impaired asset in Europe alone has recently shot up to $150bn. He says there will be more as the outlook continues to be bleak, with bank debt and corporate bonds being among the prime targets.

A recurring theme in Klesch’s conversation is the idea that distressed debt offers great upside, but also requires people to master a raft of complex problems. Among the main reasons he cites as to why few players, particularly in Europe, have managed to build a successful franchise in this market is the fact that there is a multitude of jurisdictions, each embodying their own bankruptcy code and often jointly impacting on any given turnaround situation. That corporate funding structures and creditor hierarchies have become increasingly complicated doesn’t make life any easier either.

Nevertheless, says Klesch, distressed debt is a major buzzword in today’s market, adding that therein lies a danger. “There are a lot of available assets that are value impaired, and there is a lot of money waiting to go in there – but there are few people in between who understand the risks. The propensity to misinvest in this area is huge.”