Hedge fund manager Man Group has sold claims to the estate of defunct US investment bank Lehman Brothers in a $456m (£287m) deal that will boost its cash position and see it book a tidy gain.
Hutchinson Investors, managed by hedge fund firm Baupost Group, is buying the portfolio at a 32 per cent premium to its June 30 valuation, Man said yesterday.
Man acquired the claims for $355m in July 2011 from funds managed by its GLG Partners subsidiary. It has never disclosed the size of the original claims. GLG was one of hundreds of hedge fund and asset managers which had outstanding trades with Lehman that collapsed along with the bank in 2008.
Besides sparing GLG’s investors uncertainty and possible losses while lawyers pursued compensation, Man spotted an opportunity to profit from a burgeoning secondary market in the legal exposures as investors took out bets on the likelihood claims would be paid out, and by how much.
PricewaterhouseCoopers, the administrator in charge of unwinding the estate of Lehman Brother’s British arm, said last week a first tranche of payouts totalling £1.76bn would be made to unsecured creditors this month.
While these payouts reflect settlements of 25.2p in the pound, speculators and specialist distressed asset funds are betting the typical payout level may rise as more of Lehman’s multi-billion dollar estate is settled.
The payments may rise or fall depending on settlements achieved in other parts of the Lehman business.