There’s a growing sense on Wall Street that markets are close to the top.
That’s bad news for some investors, but for a certain bread of investor – those that look to make money from assets which are in distress – these are exciting times.
“What you saw in the third quarter of this year could well have been a harbinger of things to come over the next year or two,” Bruce Karsh, CIO and co-chairman of Oaktree Capital Group said October 29 after the company reported earnings.
Oaktree is a giant alternatives manager which specialises in so-called distressed debt, or the bonds of companies that have run into trouble.
These types of investors have struggled for returns post financial crisis, as an extended period of low-interest rates has put a limit on the number of that have fallen into difficulty.
With interest rates set to rise in the near future and bond markets showing signs of stress, some are better than more companies will find themselves under pressure. Deutsche Bank strategists said in October that there could be a wave of bond defaults just around the corner.
Karsh said the private equity firm can “deploy billions of dollars in a short period of time at the right time.”
Karsh noted that the shift in equity markets in October represented a “sea change,” adding, “we saw the psychology beginning to really roll over and change, and people starting to get fearful.”
He added that they started to “see a lot of cracks” and “started to see companies that started trading at levels that got us very busy in terms of looking at opportunities.”
He added that reduced liquidity in the bond market – a topic that many folks have complained about – provides an opportunity to take advantage of fire sales.
He said: “Our sense is there is a lot of debt out there, and if and when it does happen, the opportunity will be extremely large and that’s why we raised as much capital as we have. Now much of it — most of it, almost all of it currently is dry powder, and we have been very patient.
He concluded: “We’re not yet ready to go all out. But we’ll know when we see it, and we think we’re getting closer.”