Ken Funsten doesn't fit the traditional profile of a money manager who specializes in high-yield bonds.

There is no downtown high-rise office. There are no pinstriped suits. In fact, there are no ties in evidence.

Instead, Funsten Asset Management Co., otherwise known as FamCo, occupies a ground-floor office of a townhouse in Marina del Rey, just a few hundred yards from the beach.

While his place of business may be unconventional, it was even more so when he launched FamCo in the summer of 1993.

"We started in my apartment," he said. "The living room was for research. The dining room was our trading floor and marketing was in the spare bedroom."

Funsten's career path has been equally unconventional. He started out in journalism, and eventually spent 10 years as a feature writer at the Los Angeles Times.

"If they had let me write about sports I probably would still be there," he joked.

It wasn't until the late 1980s that Funsten returned to school and secured an MBA from USC.

After stints as an equity analyst and later as a money manager at Wedbush Morgan Securities and Wertheim Schroder Investment Services, Funsten decided he would be happier working as an independent.

"I don't think people just become entrepreneurs, you do it because you are forced to do it given your personality; you have no other choice," he said. "It is the nature of larger companies to force their more creative people to start out on their own."

Funsten avoids using the term "junk bonds" to describe the investments in which his firm specializes. He explains that the quality of companies in the high-yield bond market has improved since the late 1980s, and that the dissolution of Drexel Burnham Lambert's infamous junk-bond operation and jailing of Michael Milken actually fostered growth in the high-yield market as the people Milken trained were dispersed across the financial community.

"Before Milken left the scene, only Drexel had high-yield people. After he left, everybody had a high-yield person," he said.

Despite Funsten's easy-going style, FamCo does a very serious business in buying and selling high-yield bonds of financially troubled companies.

He looks for companies whose bonds are trading at a deep discount but have a good chance of rebounding.

Ideally, when the company works out its problems, the value of the bonds will rebound and Funsten will sell them at a profit. Most turnarounds take about two years, he said. And unlike stocks, high-yield bonds pay FamCo double-digit interest while he waits.

When choosing an investment target, Funsten considers a number of criteria.

Most important is management's willingness to communicate with bondholders namely, Funsten about formulating a cure for the company's troubles.

He also looks for companies with a large amount of tangible assets that could be liquidated to repay bondholders in case the company goes belly up.

Over the years, FamCo has put its investors' money into such high-profile turnaround stories as Big 5 Sporting Goods, Jack in the Box's parent FoodMaker Inc. and California Federal Bank.

Funsten described his investors primarily as high-net-worth entrepreneurs. They invest with FamCo through two domestic partnerships, each of which has roughly 75 investors.

FamCo's assets under management have risen from $4 million in 1993 to $150 million today, and the firm's revenues are projected to top $1 million this year, up from $67,000 in 1993.

Besides Funsten, FamCo employs six full-time employees, including a senior analyst, a compliance officer and a marketing executive.

You could say Funsten was born to be an investor. The son of a corporate accountant, the talk around the family dinner table was usually about what his father was doing to make companies more efficient. He was particularly affected by stories of how his dad struggled to increase profitability while trying to preserve as many jobs as he could.

"When I talk to the companies I invest in, I often feel there are people like my father on the other side trying to save as many jobs as possible," he said.

Investing in companies on the edge of insolvency may sound risky, but Funsten sees it as being safer than investing in the stock market.

"People always picture (investing in distressed bonds) as being far more dicey than it really is. But if you are buying something after the problems are already known and are already priced into the security, and you have underlying assets that are already worth more than you are paying, then it is less risky than everything else."

That is also the view of Bill Smethurst, former president of Wertheim Schroder Investment Services and a FamCo investor.

"Ken has achieved equity market returns at significantly lower risk levels even compared with the S & P; 500," he said. According to Smethurst's calculations, FamCo's bond funds carry only about 60 percent of the risk associated with investing in the S & P; 500.

That's not to say every investment goes as planned. Back in 1995 and 1996, FamCo lost around $3 million on an investment in Victory Markets, a chain of supermarkets located in the Northeast. The reason: The company's financial statements failed to fully disclose its financial problems.

More recently, FamCo has been disappointed with its investment in Lanesborough Corp., a U.S. maker of indigo dyes used in blue jeans. Restructuring of that company ran into a roadblock when corporate raider Carl Icahn jumped in and took a controlling 34 percent stake in the company's issued debt, Funsten said. Icahn told other bondholders that he would not allow the restructuring to proceed until he has done a full analysis of the company's business outlook. The delay has meant that FamCo still hasn't seen the return on investment that it promised its investors.

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