Distressed + Secondary Market = Opportunity

Before we turn to opportunities, I need to do a mea culpa on my pick of Louisville to go all the way after they trounced Arizona. They unexpectedly ran into the Motown favorite, Tom Izzo's Michigan State Spartans. Detroit needed some magic and the team from 90 miles away in Lansing answered the call. The idea of Louisville playing in an all-Big East final faded away and we found Michigan State facing North Carolina in the final. The Spartan dream ended quickly at the hands of Ty Lawson and Tyler Hansbrough. Coach Roy Williams took President Obama's call after the game, congratulating Williams and his team and also thanking him for vindicating Obama's pick of UNC to win the tournament. I will defer to the nation's #1 fan when next year's brackets are released.

Turning to the Masters this past Sunday, we saw a "final within a final." With Tiger Woods and Phil Mickelson trailing the leaders by a significant margin when the third round ended on Saturday, they were paired together for the final round on Sunday. With the crowds and the cameras following them on Sunday they found magic, with Mickelson tying a course record 30 on the front 9 and Tiger gradually bringing the leaders within reach. This was the first Act of a very enjoyable play. On the back 9 in Act II, we realized that Tiger and Phil were going to fall short, as the magic faded and they gave back several strokes and Kenny Perry had the Green Jacket within reach. Then the unthinkable happened: a very consistent golfer trying to sit on a lead bogeyed both 17 and 18 to find himself in a three-way tie. The final Act was a sudden-death play-off between Perry, Angel Cabrera and Chad Campbell. Cabrera had stayed close all day, and when Perry left the door open Cabrera was not going to be denied. He walked off with the Green Jacket and his second major championship, having won the US Open in '07 at Oakmont.

The media market has significant opportunities in '09, but they are not all obvious and they are very different than they have been in the recent past. Across the various sectors there are companies that were overleveraged, and in this advertising tsunami they do not have the cash flow to meet their debt obligations. Many of them have excellent brands and are well positioned within their sector for a rebound as the economy improves. They will need to be recapitalized, though, in order to survive. With strategic investors on the sidelines waiting for the storm to pass, the opportunity will fall, once again, to the private equity investors who have dry powder and recognize the upside potential. It will also fall to some of the lenders, who will find themselves trading their debt for equity. This opportunity may even exist for some of the overleveraged newspaper properties that have strong brands, community support and a digital strategy for the future.

Yesterday Goldman Sachs (GS) made two important announcements. First they are going to raise capital in the public markets to be the first major financial institution to repay the TARP funds to the government. I trust that many more will follow over the next several quarters. I sense that this demonstrates that we have touched bottom and we are at the beginning of a recovery, although on any given day it does not feel that way. The financial stocks rallied on this news. Goldman Sachs also announced that they are in the process of closing a $5.5B fund to buy private equity investments at a discount in the secondary market. The GS Vintage Fund V (WSJ 4/13/09) will be the largest secondary fund raised to date. Many pension funds and endowments that need liquidity are now open to selling their positions in this asset class at a discount. Again, for the savvy investor, this is a time of opportunity.

Finally, if you go to www.assetinternational.com and click on AI's 5000 you will find the opening pages of, "Harvard Has a Cold," by Kristopher McDaniel. He chronicles why Harvard, earlier this year, tried to sell some of its private equity holdings in the secondary market. This is the type of in-depth, quality reporting and analysis that you will find in this digital publication when it launches in early June.

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