Marathon’s Richards cites potential in Europe, Energy Future Holdings

  • Praises management at Energy Future Holdings
  • Sees double-digit returns possible  for Europe debt
  • Cautious on Fed easing, Putin’s plans in Russia

“If you’re a pension plan and you don’t need liquidity every quarter, you can find opportunities with 12 to 15 percent returns,” Richards, co-managing partner and CEO of Marathon, told about 400 people at the PartnerConnect East 2014 conference at the Grand Hyatt in New York City.

Edwards said making an 8 percent return remains the “bogey for the world.” But with global economic growth lagging, “it’s not an easy chore.”

Currently, Marathon Asset Management has been shopping for higher interest rates offered by less liquid  debt deals in Europe. Richards said the firm has been buying up non performing loans with underlying properties that produce income. These deals are tapping into the economic recovery in Europe and capitalizing on the need by lenders overseas to raise capital.

“We have on the ground sourcing teams that are knocking on the doors of the banks in Europe,” he said.

Marathon Asset Management is also participating in debt transactions for Energy Future Holdings, the large Texas power producer taken private in the largest LBO of all time.

“The company has great assets and great management, but it’s just over-levered,” he said. He said he expects a possible restructuring at the firm “in the not too distant future.” Some of the company’s debt will be eliminated, but some will become new equity.

Marathon Asset Management also exited its position in American Airlines, which emerged from bankruptcy. Although the firm earned a “nice return” on the carrier, it would have made more if it held onto its investment longer, he said.

Outside of risks around the Federal Reserve ending its program of easing interest rates and Russia’s recent move to annex Crimea as part of a dispute with Ukraine, Richards said the big, systemic problems posed by the 2008 financial crisis and the European sovereign debt crisis appear to be over.

The “idiosyncratic risk” inherent in specific debt investments remains, along with some jitters around whether the Fed will start raising interest rates quickly or more gradually over the next 12 months, he said.