Anchorage is ending Hedge Fund
Kevin Ulriich's Anchorage Capital is returning money to investors in its flagship hedge fund. They will be focusing on their structured credit/CLO business with $18bn and $4bn private-equity style lock-up fund
Seems the need for investor liquidity, poor returns, and a massively shrunk distressed debt opportunity set. Ulrich also may be stepping back.
According to @hominem
Anchorage returns:
2015: 1.2%
2016: 2.0%
2017: 7.8%
2018: 0.7%
2019: -1.4%
According to WSJ,
2021: $18.5%
Another thread here:
Bump. Interested to hear people's views on the future of distressed investing in this low interest rate environment and insane amount of liquidity.
it's very challenging obviously. presumably things will change eventually, but until then distressed funds have to find other things to do (mandate permitting)
When do you see things changing? Seems like rescue financing/stressed recoveries are going to take up more of the capital at work compared to traditional Ch.11 - do you think that will change or is the distressed opportunity going away permanently?
Stellar CLO shop
I wonder, do people actually rank/give a shit about CLO managers and who is better/worse? I’ve never seen any ranking on CLO shop performance/prestige and they all gather AUM like weeds regardless
I don't know about "prestige" and who cares, but CLO/CDO managers definitely get ranked by the market/sell-side.
Dispersion on equity returns can be between 8-20% depending on the manager. So yeah, clearly there is skill involved in both asset selection and liability management.
I'm assuming you work at a hedge fund and this is the kind of attitude prevalent in that group, unaware of how unattractive their product is to LPs. This gives some clue as to why LPs think vanilla liquid credit HFs charging 1%/15% for 6-8% ITD Net type of return are clueless. There is a whole menu of direct lending (8-10%), private mezz (10-15%), CLO equity (8-20%) or CLO mezz (8-10%) to choose from for credit / alternative yield allocations. Most of these options deliver those numbers with a much higher Sharpe than a typical public distressed/special situations HF that see -15-30% types of drawdowns in a dislocation.
You realize CLO equity is just super levered leveraged loan risk right? Same with CLO and private mezz to a lesser degree. You can talk about sharpe ratios being better but we've been in a 10 year low interest rate debt binge where the downsides on default ratios haven't been tested. If you run into a true rough patch where drawdowns in those "clueless" distressed HFs are down 15-30%, your CLO equity/mezz might be worthless when default rates spike and you own a bunch of trash loans that were waved in because most CLO money is based on deployment speed and isn't that discerning (obviously not true across the board).
They have been tested through GFC and Covid - this is why CLO asset class growth had a step function growth as allocators realized that you actually can safely put 10x leverage on senior loans if the liability structure doesn't include mark-to-market triggers and have long-dated term structure.
Sure - your statement that some CLO equities can become worthless in a downturn just reinforces my point that manager skill matters to performance. Your comment that "if distressed funds are down 15-30%, CLO equity must be even more worthless" doesn't really have a logical basis. CLOs are strictly governed by their diversification and ratings requirement that inherently make the portfolios much higher quality and resilient than a typical distressed book.
Also, you've really said nothing to support how distressed funds make for a good investment. From your argument that CLOs are levered vehicles and not discerning, doesn't logically follow that somehow distressed is a more attractive substitute. So let me put it this way - assuming the average fund in both universes have serious pro-cyclical risk in a downturn, which distressed fund is producing consistent 12-15% return in good markets (because CLOs are)?
I see the change in distressed as being structural and semi permanent personally. The forced selling, info/complexity advantage, lack of liquidity, etc. that made the market work 15 years ago just doesn't exist in the size needed to meet the current capital focused on the space anymore. There's an ongoing supply/demand imbalance IMO -- there will always be flash moments of feast (March 2020) but I see them coming and going very quickly.
Markets became too efficient for liquid distressed, you need to have some private vehicles and ability to go deep into the business to make money in distressed these days.
Do you think SVP strategy of private origination and long term control equity rather than forced selling is the way forwards or are the companies in Ch.11 just too unattractive?
They’ve been able to make good money - Apollo has also done good money making deals with distressed business and holding on to them. Some other Distressed PE funds are making good money, it appears to be the sweet spot to be in. But what do I know I am no wizard.
I'm based in Australia and saw their Sydney office closed in 19/20 or sth. These guys love debt-equity conversion strategy when it comes to Aussie distressed market. Given rate environment, yeah, probably very challenging to find opportunities in these space.
imagine being paid a million dollars plus and you cant even beat inflation... what a joke. Would rather hire a wall streets bet redditor to manage my money.
founder's sexual assault accusation doesn't help
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My boss said this as well. Otherwise it makes zero sense to shut a fund down after a massive banner year returning almost 20%. Of all years lol...
What is really amazing is that, during the depths of the covid crisis, not a single well-known airline, cruise ship operator, hotel operator, toll road operator or shipping company went bust. The actions of the FED/ECB allowed businesses that should have gone bust to tap the markets and stay alive. This presented some interesting opportunities (Carnvial 1st liens that came at 11.5%, IPT was 13%, and priced at 99 which ended up trading in the 5-6% area a few months later after vaccines were announced) but the only real restructurings were Hertz and Europcar. If you were a classic distressed fund, covid should have been a dream come true but in reality it just never happened. The unwillingness of central banks to allow companies to fail just makes this strategy much more challenging today.
People who bought these carnival bonds made a killing - know a bunch of guys who bought them in syndication and sold them a year later at 110cents, basically a 20% gain on a year. But agree, there is too much liquidity, the only companies who fail are truly bad companies and often had legacy issues pre-COVID.
It's a benefit of a company being too big to fail, and they become like that by hiring lots of employees. Governments allowed lots of small businesses to fail last year, but not the big firms because they had lots of employees (and lobbying power). In a way, the same thing happened with banks in 2008.
Adapt or die
Surprised there's no news on layoffs.... almost interviewed here a year ago and glad a former employee convinced me otherwise
What did they say?
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