Picture this: You're a special situations rainmaker at a successful (albeit loss-making) financial institution or fund.
You walk into a company you've just bought after its inept splashdown. There, in front of you, are the people left behind, and they look at you, their presumed executioner, with imploring, bovine eyes.
What do you do next in this fantasy?
If you're a rich securities company, you might immediately promise them all a vast cash package, higher than your own staff's remuneration (thereby alienating all of your existing employees), and tell them to keep up the good work. (And they return to surfing the internet looking for a Phuket villa on which to spend their guaranteed bonus.)
Of course such a far-fetched event would never happen in real life (would it?). In real life the numpties left behind often join the ranks of the unemployable.
"But there are businesses that even mediocre managers can run," says Anurag Das, managing partner of Raintree Capital. "But I prefer companies which have fixed assets. Management can leave, but that's not as much of a problem as having no assets."
What about the self-proclaimed stars, the 'go-to' guys around whose magnetic aura the company formerly revolved?
"They've usually gone already," says Ian Johnson, managing director of Helmsman Fund Management. (Although surely such an observation does not include today's top executive of a de-facto nationalised US bank.) "We ask: 'Can I work with the people here for the next few years?' That's the big test. If we can't, then they have to be moved from the management team -- and we try to do that in as nice a way as possible."
There's nothing as charming as an executioner with a winning smile.
What is often left behind in the distressed investment is 'The Team'. 'Teamwork' is the favourite flat-world psychobabble buzzword of the type of firm that invariably operates the most outrageous hierarchical star-systems. To check if this is true in your distressed investment, look at the mission statement, and assume the exact opposite of what is quoted. If it says 'Our staff are our greatest asset and we invest in them,' you can infer that the whole place was a disgruntled maelstrom of neglected employees.
"The key is sourcing the deal," says Zhang Xiaolin, partner at Shoreline Capital Management. She warns, however: "Even with the right management team, you might not make any money in distressed."
If there is going to be an epitaph for this decade, it might be 'All the money is lost, but it wasn't my fault'.
"It's not productive to start out assuming a fault with management," says ICICI's Mohan Jayaraman.
It looks like good, old fashioned, honest failure is forgiven in the world of distressed debt, and sinners are free to sin again, with plenty of second chances (at losing shareholders' money), as long as they are only guilty of incompetence.