Where distressed investors should look
At last Friday’s Wharton Private Equity Partners Distressed Investing Symposium, Chrystia interviewed Mark Gallogly, co-founder and managing principal at Centerbridge Partners, a private equity and credit investment firm with $12 billion in assets under management. Gallogly said finding good opportunities in the distressed sector has become tougher as the “wall of maturities” (the point in time when debt must be refinanced) has been pushed further into the future, thanks to the booming market for corporate debt.
He notes, however, that the wall has been extended mainly for bank notes and senior debt; not for securities that are subordinate on the capital structure, like junior debt. So distressed investors should keep an eye out for situations in which a corporation’s junior debt matures much earlier than its senior debt:
Aside from buoyant bond markets, Gallogly said private equity also faces a challenge of dealing with an abundance of capital at a time when interest rates are reversing their long-term downward trend:
From [the late 1980s] until today interest rates have done nothing but decline. So the question becomes for this industry… over the next, say, twenty or thirty years, what’s the likelihood we’ll have that environment?… The likelihood is very low. The [private-equity] industry has benefited from a two-decade decline in rates. It’s not going to benefit from that going forward.
A member of President Obama’s Economic Recovery Advisory Board, Gallogly has some advice for the White House: the president should postpone fiscal austerity measures in favor of policies that will jumpstart growth in the near term. When asked what he thinks of the charge that the president is anti-business, he said that, like markets, politics faces the challenge of overswinging, and that this criticism was “way overstated.”
Posted by Peter Rudegeair.