Investing in Bank Debt
Can anyone explain how hedge funds that invest in bank debt earn outsized returns?
With the informational asymmetry that exists between these hedge funds and the originating lenders, as well as the former's inability to leverage returns by funding off low cost deposits, I cannot see how the funds would consistently beat the returns of the originating lenders, let alone generate any significant.
Are these funds essentially just betting on interest rates (or maybe conducting some kind of) and using floating-rate instruments - leveraged loans, or bank debt - as vehicles to conduct that strategy?
Furthermore, how does the strategy for these funds differ from that of CLOs and loan mutual funds? How diverse are the strategies used by funds that invest in bank debt?
Thanks in advance for any feedback. Any and all info shared would be greatly appreciated.