Over since launching their first fund in 1998, Louis Hanover and Bruce Richards, co-founders of New York–based Marathon Asset Management, have deftly sidestepped market meltdowns. But last year’s global implosion was too potent for even them to avoid, and all of Marathon’s funds were down by double digits (like most funds). The Marathon Special Opportunity Fund fell 29 percent and saw its assets shrink to $2.4 billion. The Marathon Overseas Fund dropped 35 percent, its assets reduced to $650 million from $1 billion. Altogether, 10 percent of the firm’s assets were redeemed, cutting the total at one point to $9.4 billion.
Andrew Rabinowitz, president, CFO and COO, concedes some mistakes. Although Marathon was correctly bearish on credit, it bet heavily on credit default swaps on banks and insurance companies, a wager that held its own until JPMorgan Chase & Co. saved Bear Stearns Cos. and the federal government bailed out American International Group. Rabinowitz says Marathon should simply have sold Bear Stearns and AIG short: “We didn’t make as much money as we should have because of the way we expressed it.”
Marathon’s illiquid portfolio also suffered heavy losses because of mark-to-market accounting.
The firm has since made some changes. It closed the Global Equity Fund, considering it a distraction after it lost 28 percent and assets dwindled to $240 million. Marathon also backed away from a proposed joint venture with New York–based RXR Realty for a planned $800 million real estate fund, though it plans to launch an in-house version this year.
Investors have reacted well in recent months. At year’s end the firm picked up $850 million in new cash, lifting assets to $10.2 billion. And at the beginning of this year, Hanover and Richards named four new partners in addition to Rabinowitz: Jon Halpern, head of real estate; Steven Kim, chief investment officer for Asia; Adam Phillips, CIO for Europe; and Richard Ronzetti, head of research and global investment management. Cynics might see these moves as a strategy to retain key people in the face of an imposing high-water mark, but Rabinowitz says discussions began in early 2008 and that he signed his paperwork over the summer. He adds, “The key people are locked in for the long term.”
