Sometimes the toughest decision for a risk taker to make is whether to end a successful performance early and go out on top. The money managers at GoldenTree Asset Management announced such a decision last week regarding its $750 million collateralized debt obligation, High Yield Opportunities I.
GoldenTree will begin redeeming the fund on May 1, 18 months before its maturity. The firm expects the fund will have achieved an annualized return of about 17.45%, net of all fees compounded since inception. The impetus behind closing the CDO is GoldenTree's desire to reduce its quantity of funds.
"What we're doing is paring back the number of funds that we're managing. We think that will allow us to produce better performance," said GoldenTree's chairman and founding partner Leon Wagner.
It is not common for asset managers to voluntarily return money to investors, but this is the second time in the past year GoldenTree has made such a decision. Last spring, it returned almost $1 billion to investors when it exited the long-only separate account business, a move it made in reaction to its perception of an overvalued leveraged credit market.
Underlying GoldenTree's decision is its recognition that since 2000, when High Yield Opportunities I was issued, newer financial technology and more efficient structures have developed.
"Calling High Yield Opportunities is the responsible thing to do," said Steven Tananbaum, GoldenTree's CIO and CEO. "Because it was issued in 2000 when CDOs were in their early development, the fund's structure generally requires the manager to raise cash in falling markets exactly when one should be investing. In addition, frankly, the fees investors are paying are too high. Newer financial technology is far better on all counts, and we need the capacity for the more efficient structures."
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