Part of a Treasury secretary's job is to worry about troubled loans.
But these days the firm bearing William E. Simon Sr.'s name is looking to buy them.
The investment banking firm William E. Simon & Sons LLC announced this week that it is creating a new group and fund to buy distressed bank loans, private debt, public high-yield debt, and leveraged equity investments.
The fund, dubbed the William E. Simon & Sons Special Situations LP, will invest primarily in senior debt obligations of domestic and Canadian companies.
The fund is targeting high-net worth and institutional investors and is expected to hold between $200 million and $300 million of assets.
To build the fund, the Los Angeles investment bank has hired former three former bankers as managers. The team is led by former BankAmerica Corp. executive Brendan H. Gallaher, who was named a managing director in the firm and president of the group.
Mr. Gallaher said that there has been a noticeable increase in the supply of debt since last year's global financial crisis.
"We've seen a lot of product put back into the market," Mr. Gallaher said. "Hedge funds put a lot back, and there's an increasing amount of bad loans coming out of the commercial banks."
Mr. Gallaher's track record at BankAmerica includes the creation and management of a proprietary $600 million global high-yield fund and management of the bank's $1.2 billion student loan portfolio.
At William E. Simon & Sons, he will be joined by a former colleague, John E. Klinge, who worked with distressed investments at BankAmerica. Mr. Klinge was named director at William E. Simon & Sons, along with former Imperial Capital Group executive Dale S. Leshaw.
Mr. Gallaher said the management strategy of the new fund will be "consistent with the disciplined investment philosophy that enabled us to produce strong investment returns at BankAmerica."
That means keeping a strong research team in place to examine the risk of those bad bank loans after purchase.
"I and my investment officers will be doing a thorough analysis before purchase, as opposed to buying on the fly," Mr. Gallaher said. "The main emphasis at BankAmerica was on the senior part of the capital structure. You're better protected there."
The attachment of Mr. Simon's name to a fund investing in troubled bank loans strikes more than a little bit of irony, and it's not lost on Mr. Gallaher.
"I think they, and Mr. Simon as chairman, identified this as an area that would generate excellent profits for the firm," Mr. Gallaher said. "This investment is going to be a good future contributor."
A company spokeswoman said the former Treasury secretary, who served in the Nixon and Ford administrations, isn't involved in the new venture, though he retains the title of chairman. "He's busy with his philanthropic interests," said the spokeswoman, Laurie Chase.
Instead, the day-to-day operations of William E. Simon & Sons have fallen to his son, William E. Simon Jr., a former assistant U.S. attorney who worked in the Southern District of New York with Rudolph S. Giuliani, now New York's mayor.
Under his leadership, the 11-year-old firm has branched out into real estate, private equity, and capital markets by using the model of a British merchant bank.
The firm also has branched out geographically, opening a Los Angeles office to go with locations in Hong Kong and Morristown, N.J.
