Highland Crisis Takeaway

Chidem Kurdas

Credit specialist Highland Capital is bringing its crisis woes to a surprisingly successful end after three years. Remaining clients, among them large and experienced funds of funds, sound content with the way the managers handled the situation. But the firm has significantly less assets now compared to before the crisis.  

Highland Crusader, one of the two funds closed in 2008, nearly doubled in value in the past two years and Highland expects significant additional gain on $1.3 billion of assets.  A couple of weeks ago a large majority of investors – 86% –  approved the firm’s plan to distribute $350 million from the fund immediately and the remaining $1.3 billion over three years. 

The outcome is much better than one would have expected in the depth of the crisis when junk bonds and risky loans fell sharply, inflicting heavy losses on Highland portfolios. 

There were various lawsuits in the aftermath. Highland recovered some money through litigation. One of the investors, the Houston Municipal Employees Pension System, sued the manager but has now agreed to the distribution proposal. A similar plan was approved for Highland Credit Strategies, the other fund that was closed in 2008.

However, the string of events  made a dent in Highland’s total assets, which went from around $40 billion to the current $23 billion.

It shows how important staying power is when markets melt down. If Highland had been forced to sell the assets three years ago, the loss would have been huge. On the other hand, making investors wait does not enhance one’s popularity.  Not all clients are happy with the funds’ slow wind down.

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