Imagine you are the CFO, sitting in the corner office of a bank whose headquarters are in Asia. On your books are a pile of non-core legacy assets that your team tells you are fairly valued. Your bankers also have a handful of restructuring solutions they promise will sort out the problem assets.
Trouble is, you aren’t sleeping well. You are not 100% convinced the products are fairly valued or that the solutions will work out. But you aren’t going to call your competitor sitting in a corner office of the same building and ask if his team could put a figure on the value of those legacy assets and give you a new restructuring plan, are you?
Of course not. But what if you could compile a list of what concerns you, give it to a third party, who in turn gets a series of external views of what buy-side firms might say the value of those assets are – while all along you remain anonymous. It can’t hurt: the best case scenario is that the outsiders reconfirm your house view. Worst case scenario: you find out everything has been valued wrongly, but at least you know there was a god reason why you couldn’t sleep. And why you should start doing something about your books pronto.
Matchmaker, matchmaker, make me a match…
Billarook, which has offices in Singapore and started up in Hong Kong last year, offers this match-making service. Its stated aim is to help clients “take pre-emptive asset-related actions in the face of continued opaque markets”. And it does this by facilitating confidential, independent asset-related insights. It introduces banks looking to assess their own books, or investors looking to analyse options, with a fund manager that can provide valuations and analysis. As it is not a broker, it has no interest in a trade and can therefore remain impartial.
“We have helped our Asian-based clients gain clarity and information support on asset classes as diverse as distressed Middle Eastern bank loans to highly esoteric structured credit transactions,” said Jamie Spence, one of the co-founders of the business.
You might ask, what’s in it for the fund manager? The “sell” on that front is that the manager has a new relationship with a reputable financial institution – in other words, if the fund manager does a good job, future business could come his way.
Billarook was founded by partners from each side of the fence: the buy-side and the sell-side. One of the co-founders, James Mudie, is well known in Japan as a buy-side banker in the country’s structured credit market. He made a name for himself as head of structured credit investment and credit trading at Shinsei Bank. In 2005, he joined Aozora Bank as part of a strategic management team charged with the rehabilitation of the bank after its purchase by a Cerberus-led private equity consortium.
Spence, the other co-founder, was managing director, executive officer and head of structured solutions for Asia-Pacific at the Royal Bank of Canada, based in Hong Kong. Prior to RBC, he held senior capital markets positions with several institutions, including HSBC Asia-Pacific, The Commonwealth Bank and Bankers Trust in Australia and Japan.
While there is certainly a need for such services now, and the founders come from the appropriate backgrounds to make the right introductions, one wonders: at some point shouldn’t the dodgy assets all be sold or written off? And then what? Mudie and Spence say they are finding themselves in a unique position as the rest of the world sharpens its focus on Asia. The Asian relationships developed through their asset-focused approach are proving valuable for a range of other business opportunities.
“We are finding more and more that our clients are using our confidentiality framework to help them look forward to new business opportunities and not just to help with tidying up some legacy issues,” said Mudie.
“The competition for opportunities in Asia is intense with Asian institutions looking to their own backyard for growth too,” added Spence, noting that Billarook is “able to find the right partners that can improve the chances of success.”
Competition
Billarook may be one of the few firms that isn’t also a broker, but it does have competition from other boutiques. For example, veteran distressed investors Michael Lowy and Soocheon Lee launched SC Lowy Financial Services in 2009. This is an investment banking boutique focused on distressed, stressed, high-yield and special situations transactions. It is precisely this asset class that tends to be a large part of the non-core legacy assets plaguing banks. In contrast to the other firms outlined in this article, SC Lowy provides its clients with a “one-stop shopping” solution by using in-house advisory and broker-dealer execution capabilities.
Lowy said: “This provides the client with comfort in knowing that sensitive information is retained in a single institution without risk of dissemination to multiple parties.”
Just as the others are leveraging their big-institution backgrounds, so is SC Lowy. As Lowy explained, his firm not only “has the ability to price complex assets in-house, it can also utilise a vast network of global relationships that [Lowy and Lee] have cultivated over the past 13 years in the industry to discretely restructure or divest such assets if necessary.”
And then there is Jeremy Amias and Charlie Berman, who set up shop in 2009, offering such services with their firm Amias-Berman. “We would say we remain ‘non-conflicted’ because we cannot and do not take positions nor have any legacy assets. We believe that is what conflicts the investment banks,” said Amias.
Billarook takes it one step further by not trying to be a broker. Time will tell if that stretches the “non-conflicted” idea a bit far – but, of course, they could always add brokerage to the other feathers in their cap.
On some level, this is a game that comes down to who you know and how strong those relationships are.
Amias began his career with Salomon Brothers in London in 1984, where he joined the fixed-income sales team. He went on to become the youngest ever international Salomon Brothers managing director following a period managing international fixed-income sales in New York. During the late 1990s, when the Smith Barney, Citibank, Nikko and Schroders fixed-income sales teams merged under Citigroup, Amias retained the role of head of fixed-income sales for Citigroup Global Markets.
Berman started out as a commercial banker with Bank of America. But he would later join Citi, then Merrill Lynch, to concentrate on regulatory capital securities, variable rate notes and tier-1 preferred Yankee stock deals. In 1990, Berman joined Salomon Brothers (and crossed paths with Amias), where the scope of his mandate broadened to include public sector borrowers and corporations.
Growing pains
While the boutiques offer bespoke services, they have unique problems. Amias and Berman are already bumping up against the growing pains of any business: attrition. During the crisis, they wooed John Lefevre, a debt capital markets young turk who had worked for Amias, but he recently quit, lured by the options available since the markets have improved. All businesses, of course, face turmoil. But smaller ones arguably feel the pain far more when talent moves on.
This, of course, isn’t a deal breaker. As alum move on, if they leave on good terms, there is every reason to believe they will drive business to their favourite boutique. But onlookers say for the boutiques to succeed they not only need relationships with the international banks – but also with each other, if not within the region, at least globally.
“We also use some other pure advisory firms to help us get the right price levels,” acknowledged Amias, citing New Oak, a US advisory and analytics firm, which has worked with Amias Berman to help clients get their portfolios evaluated. New Oak is also licensed as a broker and can intermediate trades as an agent.
A network of boutiques working together has all the hallmarks of a new beginning – or, perhaps, an end. If the US and European boutiques start to merge with each other, will they simply create the kind of behemoths they strove to differentiate themselves from in the first place?
This story was first published in the December/January issue of FinanceAsia magazine.
