LAZARD MANAGERS BOLT TO BUYOUT FIRM, DISTRESSED FUND WILL CLOSE Three managers of a distressed debt fund at Lazard Frères left the firm last week for the Quadrangle Group, a New York-based $1.1 billion private equity firm run by Steven Rattner, the high-profile former Lazard deputy chairman. Lazard will cease operation of the fund, according to Joele Frank, an outside spokeswoman. “As a result of these abrupt departures, we have concluded that the best interests of investors require that we begin an orderly winding down of the fund,” she said. The management team, comprised of Andrew Herenstein, Michael Weinstock and Chris Santana, started the Lazard Debt Recovery Fund with $25 million last October and grew it to $280 million as of last week, according to Frank. Distressed traders close to the three say they left Lazard because the firm placed what they felt was strict limitations on the securities in which they could invest. The traders say Lazard officials were unusually conservative in guarding against any possible conflict between the fund, which invests in companies that are restructuring, and its business as an adviser to those to those companies. That conservatism became more extreme in the wake of the Enron debacle, and, as the fund grew, may have become untenable for the traders. “Lazard is the largest adviser to bankrupt companies in the U.S.,” said one trader, implying that the fund's range of investment options would have been severely limited if it excluded Lazard's clients. Herenstein and Weinstock declined comment, and Santana could not be reached. Frank would not comment on why the team left, saying only that the version given by the traders is “full of inaccuracies.” The trio plans to set up a similar fund at the Quadrangle Group, which heretofore has not had a distressed debt fund. Founded some two years ago by Rattner and three former managing directors at Lazard, it has thus far invested exclusively in media and telecom companies. — Dan Freed Reprinted with permission of BondWeek.