Expanding alternatives

Debt and distressed player GSC Partners is launching a hedge fund – and picking up two distressed pros to help. By Aaron Lovell.

GSC Partners, a New York-based distressed firm that looks for credit-based alternative investments, recently announced the creation of a $200 million (€164 million) real estate investment trust to invest in whole-loan mortgages, bank loans, corporate loans and other asset-backed securities.

But GSC is looking to expand into other alternatives, as well. Last week, the firm hired two distressed specialists to head up GSC Capital Corp, a newly created hedge fund, which will focus on corporate debt and equity investments in the distressed and leveraged markets.

Drew Doscher and Jeffrey Horan will join the firm as managing directors. Doscher and Horan formerly worked at UBS, where they founded the firm’s global distressed department and headed up its Global Distressed Securities Trading division. Before that, the duo worked in distressed trading at Lehman Brothers.

“We believe that this new initiative represents an exciting new growth opportunity for GSC Partners and is an excellent complement to our other alternative asset businesses,” said Alfred Eckert III, the chairman and chief executive officer at GSC, in a statement, adding that the firm is also considering other alternative investment strategies.

With the REIT and hedge fund, the firm adds to an already diverse investment strategy. The investment firm closed its GSC Recovery II private equity fund in May 2003 on $750 million, topping its 1998 outing by $350 million. It is also reportedly raising a $650 million collateralized loan obligation to invest in middle-market loans.
GSC’s expansion is bucking the established trend of hedge funds encroaching on the LBO space. New York-based hedge fund DE Shaw & Company has expressed a desire to become “much more active” in the space, while firms like Cerberus Capital Management have been going up against private equity firms in high-profile deals. Cerberus also recently announced they are taking their LNR real estate division public as a REIT.

Critics continue to argue that hedge funds do not have the expertise to run companies, much less turnaround distressed ones.