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Now is time to buy: Hedge fund Avenue Capital

  Financial assets have become so cheap because of the credit crisis that now is a good time to scoop up bargains, the head of one of the world’s biggest hedge funds, Avenue Capital, said on Wednesday.

 

“Now is a phenomenal time to buy, assuming you think we’re not in a depression,” Marc Lasry, chairman and CEO of the company, said at the 2008 Clinton Global Initiative meeting in Hong Kong. “We’re looking at valuations we think are extremely low. Unless the unthinkable happens, you’ll be fine,” he said, referring to the investment environment.

Lasry said the fund is holding around $7 billion in cash. Of that capital, Avenue is investing 10% a month, he said. Six months ago, Avenue, a $20.5 billion hedge fund firm that specializes in credit strategies, posted its largest monthly losses in six years. Though flows of credit continued to be sluggish and fears of a long and deep US recession have kept stock markets under pressure, Lasry said by the Q2 of 2009 banks will lend again and consumers eventually will spend.

Lasry, a distressed debt specialist, said he sees a 10% chance that the current US recession will turn into an outright depression. Compared to other countries that saw a decade of stagnation, Lasry does not expect a prolonged economic slide in the United States. “The big difference is that the US forced its banks to recognize losses. Banks have not started lending but will in the first or second quarter. Once lending begins, the consumer will start to come back,” he said.

Many hedge funds in the last year have had to greatly slash the money they borrowed to boost their returns as credit markets froze. As a result, they cut exposure to risky assets and allocated more of their portfolios in cash. New York-based Avenue Capital, founded in 1995 by Lasry, ranks among the industry’s most prominent players. It recently raised $6.1 billion for “special situations” trading strategies.

Lasry, on a panel that included the chairman of the China Investment Corp (CIC), China’s sovereign wealth fund, simplified the crux of the problem investors are facing: financial institutions are not willing to spend. “When folks like CIC start investing, that’s when you will see things turn around. Our little $7 billion is not going to be enough,” Lasry said, referring to Avenue’s cash holding.

The meeting in Hong Kong is a summit gathering of global political and business leaders and celebrities run by the organization founded by former US president Bill Clinton. Avenue hired Clinton’s daughter Chelsea in 2006. (Reuters)