Credit/Special-situation HF performance this year?
Does anyone know the performance of credit/special-situation shops this year? Did COVID and recovery help or ruin them? Many seemed to struggle already prior to the COVID (Solus, BlueMountain, King Street losing many senior folks).
Anchorage has been heavily hit and probably won't recover. Bleeding AUM like hot cakes out of their flagship and also firing people across the board.
Thanks. I didn't know they got this bad. To your point: I did see several exits from them and their AUM dropped by half this year.
what you may not have seen is they quietly replaced all that AUM with CLOs (both acquired and raised)
The CS, Eureka and HSBC Private Bank reported reruns show that distressed and credit opportunity funds have returned flat to slightly negative YTD and for the 1,3,5,10-yr averages are between 3.5-4%. Now that 2009 is out of their 10-yr returns, which was the last banner year for distressed. Hedge Funds are great wealth creating vehicles for their owners, not so much for their investors.
As someone who's been in distressed for a while, what are your thoughts on someone just now entering the asset class for a career? I find distressed to be very interesting and enjoy following a lot of the topical situations (Eaton Vance and Apollo, travelport and neiman IP stripping, etc), but I believe that things are different than when Moyer wrote his book. For one, there is so much money chasing so few opportunities and even the concept of forced mutual fund sellers that can be taken advantage of doesn't apply all the time anymore (i.e Serta Simmons situation with eaton vance). When you add in Fed intervention distorting price signals, there's been no attractive distressed opportunity set for a decade now. There are just so few funds that are actually performing well, outside of a few that I have heard that are sub $3bn in aum, that I'm unsure if it's the smart career choice post my RX stint even if I do find it more interesting that vanilla L/S or PE.
Too many kids in distressed. Take a look at Wharton and see how there can be an entire class of new grads blindly chasing after RX/distressed seats. Same for a lot of the other schools. I remember a time when there's a better balance between M&A, LO, S&T, L/S, PE etc. Now it seems like it's distressed or busts for these kids. Not sure exactly what caused this. Just an observation.
Very helpful info. Surprised it got downvoted. Given their subpar performance for the past 5-10 years, this year and next would be critical for them.
Where do you find the returns for credit and distressed opportunity funds?
Would second the above, most distressed focused funds returns haven't been great other than a few outliers like Diameter, Mudrick, Nut Tree.. though in the case of Diameter and Nut Tree it seems they avoid a lot of the true media heavy ch. 11 cases in favor of higher yielding stressed liquid bonds. The Moyer book classic, sexy loan to own strategy unfortunately just isn't a reality of the market right now with the way a lot of re org equities trade. Even in the next cycle the recoveries and types of re orgs we see are going to look different than pre - 2010 given the boom in sponsor owned distressed companies, the heavier (and now more sophisticated) CLO ownership in senior TL heavy cap structures and the rise of private credit funds. IMO, the event driven funds that realize distressed at a large scale only works as a cyclical strategy and are able to shift focus when the opportunity set isn't there have performed the best - the best example that comes to mind here is Third Point.
Can you speak more on Third Point? What strategy have they refocused capital deployment towards? Did they churn IP or were IP able to modulate skillset?
Check out the presentation below. They basically just adjust credit and equity bias in the portfolio based on where we are in the cycle. Unlike a lot of guys who do event driven and distress, Loeb has recognized that richly valued CF-generative compounder type companies are what have been rewarded in this market and has been able to allocate capital to those names often with the added layer of activism. Not to say he hasn't had made a couple of bad calls these past couple of years.
https://thirdpointlimited.com/master-fund-strategy
Distressed changed a lot since the Moyer book, which is still a very good book, but the BK code changes in 05, the move towards prearranged filings and the huge increase in secured loans that run the process and fund the DIP has changed the investment process. Also a lot more capital chasing deals and Fed policy make credit underwriting and fundamental security selection process less meaningful. It’s very interesting sector to work in, my point was returns are terrible. The big credit funds in particular have so much capital to put to work, that its nearly impossible to differentiate. The best thing you could have done over last 5 years was avoid shipping and energy where funds destroyed billions of capital. But big funds always plow into a sector when it goes into distress regardless of merits because they have to justify their fees. More funds have raised lock up draw down vehicles, which is better aligned structure for distress, but so far overall returns are terrible for credit opportunities and distressed
you forgot retail, wireline and commodities/quasi-sovereigns.
I'd argue more than ever that we won't see many funds retain 2/20 no hurdle setups going forward in this segment of the market, it will all be structured with longer lockups in exchange for a relatively high hurdle (many flagship "2/20" products had already been recut to 1-1.25% and 15-20% over a LIBOR hurdle in recent years, may be 6%+ hurdle going forward). On the flipside, asset gatherers who raised significant drawdown capital in March/April (well documented on Bloomberg) also are now returning 15%+ YTD which allows them to make up for some of the (lack of) performance fee from the flagships that are reporting results into Eureka/HSBC and creating more stable mgmt fee revenue streams for the future.
The true losers of this pandemic will be the guys who dug deep stretching themselves in alternative yield products (structured equity tranches, short roll CDS), overweighted terrible "CCC" industries (retail, energy, wireless megacaps) and chunky ownership in the takeback securities received, funds holding too much illiquid "deep value" post-reorgs and those that somehow strung along for years with a single-product offering that "tried to do it all" and never did it particularly well leading to an unbundling and sudden change of the firm's revenue profile.
Interested
Lots of good points above. My $0.02c - for the past several years pre-covid, you had to really go down the quality spectrum to find anything with 1000+ OAS (just using that as a random cutoff point for stress/distress situations). There were just so few "ok businesses, terrible balance sheet" situations. I've watched people get blown up by forgetting that high leverage on a bad business usually doesn't end well.
Anyone have info on YTD returns for Elliott, Monarch, or Silver Point?
Only one I know is Monarch Debt Recovery Fund which is down 3.42% as of 8/31.
Don't forget a bunch of post-reorg equities marked at whatever the hell you want it to be marked so that you can show low-single digit decline instead of double digit decline (not knocking MAC specifically but we all do it and you'd be shocked how different the marks are between funds that all took back the same equity security).
Elliott is +7.7% as of 8/31.
For distressed specifically, or in total?
How has Brigade faired?
Bump
Bump
Bump
Apollo's credit hedge fund is up like 18% this year from some timely shorts (Hertz, CMBX)
Hildene -17%
Marathon securitized credit -20%, loan opportunities -13%, special opportunities -3%
Owl Creek credit opportunity -0.1%
Angelo Gordon super -6%, Mortgage Value -8%, corporate credit opportunities +1%
CVC -7%
Sound Point -3%
Do you know of Owl Creek's overall return YTD? I know they have a fair bit of AUM currently in equities so was curious how they've done across the fund.
Jesus... the HY index is flat for the year. What the hell are these guys doing?
First time hearing of CCC vs. BB dispersion or holding shitbag credits in energy and retail going BK? HY Index includes all the shit compressing from 4.5 to 3.125% yield that a lot of these firms don't touch in their total return opportunity products (for better or for worse). HY Index has outperformed almost all fund over YTD, 1, 3, 5, 10-yr unfortunately
Yeah I totally get that. Its just surprising how religiously some funds adhere to their mandates to the point where they just basically decide not to take free money (IG Bonds and TLs in the 80s in march) because its not "what they do". Maybe it stems from the fact that they don't have analyst coverage of these performing names that traded down 20 points and couldn't get enough comfort with the risk in time. I do know however that several traditional distressed funds played the IG trade and did well (Silverpoint, Oaktree, Goldentree, Baupost).
Goldentree is a distressed fund?
what you're describing is different. Buying an extremely short-term dislocation in the market without needing to run through the traditional credit research process is not the same as the high-yield dispersion phenomena we've seen for many years, because very few funds if any funds target and pick out the 4% credit tightening to 3% because the latter trade is purely a bet on the yield curve. The former almost everyone will do but by nature of temporary dislocation it doesn't last long and people were focused on a lot other dislocations (distressed bonds down 50% that have now recovered back to Feb or even back to par for some structures and especially structured credit which had huge forced selling in that same time period). Most of these funds don't hold more than 10-15% in cash so rotating out of NO liquidity names into highly liquid quality BB/BBB tranches is easier said than done and when you are staring at your "CCC credit you have a differentiated view on" being down 50% vs. an IG bond down to 90 from 110, you don't necessarily want to rotate that trade. Great that Baupost holds 30-40% cash and can do IG trade in periods of great dislocation eyes closed, their recent track record is still horrendous for being a mostly equity fund.
Many firms raised dislocation funds, that fresh capital could do as it pleases and those funds are up 10-20% across all the guys who raised it. It doesn't work like that in practice for invested funds when you couldn't even hit a bid for normally liquid loans in March.
The only thing is being invested in illiquid credits at the top of the cycle was a choice in and of itself. If you were concerned about how tight the market was going into this year and wanted to position yourself to take advantage of any dislocation/correction, you stayed relatively liquid or held cash. Either that or your platform is solid enough to raise additional capital from long-standing LPs at a moment's notice or have an internal balance sheet. Not every credit investor is out there holding CCC "differentiated view" dogshit (hint: it's not differentiated) that they got stuck on. The market call of the year was clearly to trade up in quality, using the dislocation window where prices converged indiscriminately between IG, BB/B, CCC - if you could buy a representative risk in each bucket at similar prices, you obviously buy the IG and BB. You are incorrect to suggest that this was some yield curve bet - it's not with the exception of long duration IG - it was a spread bet and profound shift in the market on how risk was being (incorrectly) priced. That was the big picture. Spread compression bet is just a different name for a valuation and discount rate bet - the bet you are making stems from the same logic between wanting multiples to expand on illiquid reorg equity and wanting your Charter bond to compress from +700 bps to +200 bps. So, it is really not excusable that a manager would dismiss missing this opp set by saying that is not their mandate - this kind of risk/reward rebalancing is exactly what they are supposed to see and profit from.
Any word on Davidson Kempner’s performance recently.
Main fund is +1.6% ytd as of 8/31
any word on Sankaty's recent performance? cheers
Bloomberg article from today that highlights some of the top performers in 2020:
https://www.bloomberg.com/news/articles/2021-01-08/credit-funds-from-ap…
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