market folly

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is is the credit panel which featured KKR's Nat Zilkha, Centerbridge's Jonathan Lewinsohn, and ex-Apollo's Ted Goldthorpe.


Credit Panel at Capitalize For Kids Conference 2016

•    The asset origination market is very large. It possible to earn good returns in a fixed income environment where solid trading opportunities are more scarce than they were before the crisis, because of lower bank inventories. There is a trend of investors moving towards senior tranches (less risk).

•    Even so, the non-investment grade space is approximately $2 trillion. However, in an expensive market like this one, firms are increasingly focused on exiting investments vs looking for new ones.

•    Unrated products are harder to sell due to specific mandates. PE firms are now bundling numerous products, getting it rated by the agencies and then reselling it.

•    Even after the crisis, there is a notable duration mismatch between assets and liabilities. With rates so low, duration risk is exceptionally high (if you need longer duration assets).

•    Commodity cycles are long because of how much capital is invested and how long it takes to complete projects. Generally Public information on energy companies is not reliable since they choose to present the best wells, etc.

•    Believes places to look for opportunities are Asia, specifically India, but difficult due to poor regulatory structure.

•    Risks to credit investing are numerous (China, higher rates, etc).

•    Believes this environment forces investment firms to look for opportunities on a monthly/quarterly basis since they don’t want to miss out on moves (like the large sell-off in early 2016).


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.