Marc Lasry, chairman and chief executive of New York–based hedge fund firm Avenue Capital Management, has specialized for years in distressed-debt investing, a topic with which he grew intimate in a previous life as a bankruptcy lawyer. He has become even more steeped in it lately, as Avenue in recent months has bought — without government support — some of the so-called legacy assets owned by troubled banks. Lasry, 49, co-founded Avenue in 1995 with his sister Sonia Gardner and has quadrupled assets under management in the past four years, to about $16 billion. A donor to the Democratic Party and a student of politics, he supports regulatory reform. He met recently with Alpha Senior Editor Karl Cates.
Can you boil down what this recent drive toward regulation is all about?
It’s all about the fear of having risk in the system. “Transparency” is the new buzzword. But for a firm like us, it’s kind of irrelevant because we have no issues. The more issues you have, the more you’re not going to want transparency or regulation.
Are you advocating having to post your holdings on a billboard in Times Square?
It doesn’t bother me either way, actually. Imagine if you could have known everything that Bernie Madoff was doing. Maybe a regulator might not have fully understood, but I can tell you, people in the business would have understood it. The reason people don’t want you to know what they’re doing is that at times, they’re doing things they shouldn’t be doing. If you’re an equity fund, and that equity fund buys debt, well, now you’re going to have people saying, “Hey, I gave you money to buy equities. I didn’t give you money to buy debt.” A regulator should be able to see everything we own and figure out, “Hey, is there too much risk in the system? How do we turn it down?”
Do you think that leverage should be better policed?
On an equity you can short only the amount of equity that is out there, whereas on a credit default swap, you can short a bond ten times, 20 times, 30 times, 40 times.
Everybody should be reasonable about it. Why should I be able to short something 30 times the issue in a credit default swap? Obviously, that’s going to be a problem. Limit leverage and say, “Look, we don’t want funds using more than two or three times leverage. Period. Banks can use only ten times leverage.” Then you’re going back to the way things were, which is that people were paying reasonable prices. And it’s not who has access to leverage who ends up doing better.
If you had had the president’s ear on the bank bailout, would you have advised him differently?
The simpler thing would have been to just guarantee the banks. You don’t need to nationalize. You don’t need to do anything. Just say, “The government stands behind our banking institutions, so the bank will not fail.” I think they believed politically they couldn’t do that, but economically — it’s the same thing as when we were all starting out, your father or father-in-law guaranteeing the loan, or you guaranteeing your kid’s loan. If somebody believes you’re there, it’s fine.
