Perry Capital, a $10 billion New York-based multi-strategy hedge fund led by Goldman Sachs alum Richard Perry, is making a $1 billion bet against investment-grade corporate bonds, according to The Wall Street Journal.
The WSJ reports that Perry Capital is shorting debt issued by ten companies. The report didn’t specify which companies, but it said that the fund’s short bet includes owners of commercial real estate and telecom companies.
For the trade, the fund purchased credit-default swaps (CDS) on the bonds at a cost of about $10 million per year, the report said.
The hedge fund stands to profit handsomely if the companies are downgraded by ratings agencies.
Investment-grade bonds have a rating of BBB or higher by Standard & Poor’s or Baa3 or higher by Moody’s. They’re company’s seen as having the safest balance sheets. If they’re downgraded, it could be a bigger sign about the overall health of the economy.
Last year, Perry Capital’s flagship lost about 12%, according to the Financial Times. The 96-person firm also cut 20 of its staff as the fund was hit with redemptions.
We’ve reached out to Perry for comment.
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