Dialogue: Michael Maroof

In October distressed debt hedge fund manager Monarch Alternative Capital - which spun out of Quadrangle in January 2008 - closed a private equity-style hedge fund in excess of $300 million, combining the advantages of both asset classes: the fund can invest in opportunities when they are available and hold lower cash balances than typically held in a hedge fund. Jennifer Harris spoke with CFO Michael Maroof about the firm and the new fund.

I met them through a recruiting firm. My first day was actually the day the spinoff was pre-announced to investors in November 2007. When I first started, most of my work was dealing with the separation from Quadrangle, which was smoother than anticipated. Since we retained certain shared services with Quadrangle through 30 June 2008, we were able to seamlessly transition off of various back office functions. I found the hardest part of the transition to be making sure we hired the appropriate people to fill various roles. We take hiring, training, and retaining our employees very seriously as illustrated by our near-zero turnover.

I started my career as an auditor at Pricewaterhouse. I spent a few years there building up my expertise in accounting and then moved to Och Ziff, where I was the controller of their distressed high-yield funds. That group spun off into what's now Cyrus Capital, but I stayed over at Och Ziff. Then I decided to join a small startup called Duma Capital in 2005. When the Monarch opportunity came up, obviously it was a fantastic opportunity that I took, as it combined all of what I was looking for: a successful and established firm with experts in the distressed space who were committed to building a best in class organisation.

Everything on the finance and accounting side falls under my umbrella: investor NAVs and returns, valuation, everything related to fund accounting, taxes, etc. Then on the business side a lot of operations items, from employee compensation to benefits to real estate, are handled by me. I work with the investor relations group as well, mostly dealing with investor due diligence meetings and accounting requests and the like. As investor relations pertains a lot to the finance side, I receive a lot of calls from our investors regarding tax estimates or whatever it might be on the numbers side.

The strategy is identical to our current hedge funds; we're not doing anything different. The structure of it is really private equity in nature in that we call down capital versus investors contributing capital all at one time on the front end, and on the back end we have a waterfall structure for incentive fees, so we don't get incentive fees until the end of the deal versus the annual incentive fee structure for our hedge funds. Additionally, the incentive allocation is subject to a preferred rate of return. We find that many investors like the hybrid fund these days as their interests are aligned with those of the other investors.

Valuation is a big focus with FAS 157, so building our approach on how to handle it is a priority. Everyone in the industry is trying to get their heads around what's required and everyone's figuring out what the correct approach is, but it's been something we've been working on for a while and working on fine tuning our approach.

Secondly, we are focused on technology related matters. We implemented a general ledger system in 2008 that has made us more efficient and enhanced our internal reporting. Our goal at the end of the day is to become a best-in-class shop, so in addition to the general ledger system and other technology-related systems, we have been enhancing other operational functions to augment our processes and procedures.