The Hedge Fund Report: Vultures Feed at Dana

Distressed-debt funds that were circling Dana(DCN) like vultures now have the upper hand. The company said Friday that it had filed for bankruptcy after missing payment on its bonds.

Dana will try to reorganize through Chapter 11. "They don't have a great management team, and the debt load is really big. But if they can restructure it, it's still a valuable business," said a hedge fund analyst before the announcement.

Most distressed players have been buying the cheap bonds with the hope of getting equity when the company completes its restructuring processes. Other hedge funds have been shorting the debt where they saw more downside (therefore more profit to be made) than on the stock. The results should be mixed.

Curiously, a fair amount of bidding on the debt went on after the filing. Before the news, bonds traded in the 65 to 68 range, or $650 to $680 for a $1,000 par value. After the announcement, the bonds jumped to 69 to 70.

The bidding reflected two things: first, a short squeeze on the part of managers who had shorted the bonds and who had to buy them back; and second: a last-minute and frantic bid from distressed players.

Wealthy and Bullish

Even if they're slow to make the adjustment, a growing portion of rich Americans are testing the alternative-investment waters.

A new study by Northern Trust reveals that 70% of high-net worth individuals with more than $1 million in liquid assets have some exposure to alternative assets, including hedge funds, private equity and real estate.

Those investors allocate 18% of their portfolios to alternative assets, with 13% to real estate, 4% to private equity and 1% to hedge funds. Equities continue to be the dominant asset class for sure, making up 49% of the allocations, followed by bonds at 15%.