is special sits having a come back?
Heard special sits wasn’t doing too well these past few years, but with present conditions do you see special sits having a come back in the next few?
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Special situations (special sits) as an asset class has faced challenges in recent years, with many funds struggling and low double-digit returns being considered exceptional by allocators. However, there are indications that the landscape might shift in the coming years.
Based on insights from WSO discussions, the potential opportunity set for distressed and special situations strategies appears to be growing, particularly if interest rates remain elevated. The levered credit market's size and the broader economic environment could create favorable conditions for these strategies. While the traditional distressed hedge fund model may not see a full resurgence, certain outperformers like Mudrick Capital and other niche players could continue to thrive.
In summary, while the broader special sits space has faced headwinds, the evolving economic environment and market dynamics suggest there could be a comeback for select strategies and funds in the near term.
Sources: https://www.wallstreetoasis.com/forum/hedge-fund/the-future-of-special-situations-distressed?customgpt=1, Place Your Bets | The Daily Peel | 1/30/23
What conditions ?
I’m probably not the most well-informed, but it feels like it’s a very volatile and uncertain world atm, with lot of geopolitical risk, increasing debt, whatever AI is doing to tech and the rest of the economy.
Liquid stressed / distressed will not come back… see first brands group. The strategy is too volatile to be scalable - can’t be sold to many growth channels such as wealth, retail. Credit is a scale game as you see from the wave of acquisitions. For a business unit to sustain itself in these large platforms you need scale. Hence many are trying to transition to private capital solutions, which will usually end up being amend and pretend loans - once you care about relationships (which is required when you have scale), the game becomes Aum not alpha. In addition, true alpha generation ability is always for the select few. There is not 200 analysts we can generate alpha; therefore it can only be a game played by the best investors
so if you’re an rx analyst today, where would you want to go after your stint?
I would go to places that pay well but also expect a lot from you - Apollo, diameter, BX / kkr / Oakhill if you are okay with less high octane stuff and good at politics, mudrick, silver point, monarch, mgg (privates), crestline (privates)
I would avoid the following: Carlyle, blue owl, oak tree (less intense now and too many people), GS, certain other platforms that have a lot of discussions on the forum regarding bad returns or low pay.
The alpha market is a talent market. You pay low, you get low. No arbitrage.
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