2016 Global Credit Forum
On April 20, we attended the Global Credit Forum sponsored by Credit Suisse at its offices in New York. Presenters (other than those employed by Credit Suisse) included an array of hedge fund managers (representing firms including Angelo, Gordon; York Capital Management; Highbridge Capital Management, and Och-Ziff) and private equity investors (firms represented included Bain Capital, Carlyle and KKR).
From our perspective, much of the discussion was a little too “inside baseball”—a mix of credit-related esoterica (how many issuers of new CLOs did panelists predict would enter the market by year-end 2016?) and assorted fund-marketing shop talk. Even so, a few nuggets emerged over the course of the day:
- With respect to distressed debt: There was general agreement that we are not witnessing a conventional distressed cycle, but rather an environment in which excellent opportunities exist, though managers must pick and choose extremely carefully, especially in the energy sector, where many hedge funds “got over their skis” and invested too early and perhaps too indiscriminately. Ironically, while most distressed and high yield managers are busily attempting to sort through oil and coal related businesses, Angelo, Gordon said they’d been finding tempting opportunities in the alternative energy (i.e. solar power) industry due to pressure from persistently low natural gas prices. They, and other managers, also mentioned retail as a potentially fertile hunting ground.
- At various points throughout the day, a moderator would poll the audience in real-time by way of electronic keypads distributed to each attendee (there were several hundred people in the room, so a reasonable sample size). One question asked about the Fed’s monetary policy. Almost 60% of respondents said it was “losing traction,” while another 30% selected the answer indicating it was “pushing on a string.” So, not a lot of faith in fiscal repression in that room either.
- Credit Suisse macro specialists on one panel offered outlooks for certain asset classes.
- The equity strategist opined that after the first quarter dip and rebound, large cap domestic equites looked “pricey” again. She was more favorable on small-cap stocks, and also foresaw the market environment evolving into one that favored value over growth (a reversal of the trend we have witnessed over the past several years).
- The high yield specialist noted that after a horrendous start to the year, the high yield market saw a stunning recovery, which he believed would bring in retail investors and others “chasing the market,” leading it higher still. He said that while default rates were rising (5.1% he reported), that was almost exclusively an artifact of energy/commodity companies—ex-commodities the default rate stood at a modest 1.7%.
- Several mentioned the present correlation of oil prices to both the equity and high yield markets. At least for the moment, as goes oil, so go stocks and (junk) bonds.
- Finally, on oil prices: two choice quotes:
- “Is it time to dip your toe into the energy waters yet? That depends on whether you’re comfortable having nine toes.” Glenn Youngkin, The Carlyle Group
- “The last time anyone was right on forecasting commodity prices was never.” Jeffrey Ball, The Energy and Minerals Group