Is distressed an indicator of public market activities. Given the recovery in markets, what does that mean for the opportunity in distressed? Will we see a divergence in the bond and equity markets? What are the regional differences and where are the opportunities?[vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Victor%20Khosla%22%2C%22job_role%22%3A%22Founder%20and%20chief%20executive%2C%20SVP%20Global%20(United%20States)%22%2C%22content%22%3A%22Victor%20Khosla%20is%20founder%20and%20chief%20investment%20officer%20of%20Strategic%20Value%20Partners%2C%20LLC%20(SVP)%2C%20an%20%2411.4%20billion%20global%20alternative%20investment%20firm%2C%20focused%20on%20distressed%20and%20deep%20value%20opportunities.%20He%20established%20SVP%20in%202001%20and%20has%20built%20one%20of%20the%20leading%20firms%20in%20the%20business%2C%20with%20approximately%20123%20employees%20and%20offices%20in%20Greenwich%2C%20CT%2C%20London%20and%20Tokyo.%20%20Khosla%20has%20a%2032%20year%20track%20record%20in%20distressed%20and%20private%20equity%20investments.%20%20He%20started%20his%20career%20at%20Citibank%20(1989-1993)%20and%20subsequently%20built%20and%20managed%20one%20of%20the%20top%20distressed%20proprietary%20trading%20businesses%20at%20Merrill%20Lynch%20(1993-1998).%20%20At%20the%20time%20of%20his%20departure%20from%20Merrill%20Lynch%2C%20Khosla%20had%20investment%20authority%20for%20%242%20billion%20in%20corporate%20and%20real%20estate%20investments%20and%20headed%20a%20team%20of%2040%20analysts%20and%20traders%20based%20in%20New%20York%2C%20Tokyo%2C%20London%2C%20and%20Hong%20Kong.%20%20After%20leaving%20Merrill%20Lynch%2C%20Khosla%20served%20as%20president%20of%20Cerberus%20Capital%20(1998-1999)%20and%20ran%20MooreSVP%20(1999-2002)%2C%20a%20JV%20with%20Moore%20Capital%2C%20which%20focused%20on%20investing%20in%20Japanese%20distressed%20debt.%20Khosla%20graduated%20with%20a%20first%20class%20Bachelors%20of%20Commerce%20(Honors)%20degree%20from%20Delhi%20University%2C%20an%20MA%20in%20Economics%20from%20Vanderbilt%20University%2C%20as%20well%20as%20an%20MBA%20from%20the%20University%20of%20Chicago.%20He%20is%20a%20member%20of%20the%20management%20council%20at%20the%20University%20of%20Chicago%20Booth%20School%20of%20Business%20and%20is%20on%20the%20board%20of%20Pratham%20USA%2C%20one%20of%20the%20largest%20non-governmental%20education%20organisations%20in%20India.%22%2C%22image%22%3A%2244348%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Fvictor-khosla-6723741b4%2F%22%7D%5D” title=”Speakers” el_class=””][vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Amanda%20White%22%2C%22job_role%22%3A%22Director%20of%20institutional%20content%2C%20Conexus%20Financial%20%20(Australia)%22%2C%22content%22%3A%22White%20is%20responsible%20for%20the%20content%20across%20all%20Conexus%20Financial%E2%80%99s%20institutional%20media%20and%20events.%20She%20is%20responsible%20for%20directing%20the%20bi-annual%20Fiduciary%20Investors%20Symposium%20which%20challenges%20global%20investors%20on%20investment%20best%20practice%20and%20aims%20to%20place%20the%20responsibilities%20of%20investors%20in%20wider%20societal%2C%20and%20political%20contexts%2C%20as%20well%20as%20promote%20the%20long-term%20stability%20of%20markets%20and%20sustainable%20retirement%20incomes.%20She%20is%20the%20editor%20of%20conexust1f.flywheelstaging.com%2C%20the%20online%20news%20and%20analysis%20site%20for%20the%20world%E2%80%99s%20largest%20institutional%20investors.%20White%20has%20been%20an%20investment%20journalist%20for%20more%20than%2020%20years%20and%20has%20edited%20industry%20journals%20including%20Investment%20%26%20Technology%2C%20Investor%20Weekly%20and%20MasterFunds%20Quarterly.%20She%20was%20previously%20editorial%20director%20of%20InvestorInfo%20and%20has%20worked%20as%20a%20freelance%20journalist%20for%20the%20Australian%20Financial%20Review%2C%20CFO%2C%20Asset%20and%20Asia%20Asset%20Management.%20She%20has%20a%20Bachelor%20of%20Economics%20from%20Sydney%20University%20and%20a%20Master%20of%20Arts%20in%20Journalism%20from%20the%20University%20of%20Technology%2C%20Sydney.%20She%20was%20previously%20a%20columnist%20for%20the%20Canadian%20publication%2C%20Corporate%20Knights%2C%20which%20is%20distributed%20by%20the%20Globe%20and%20Mail%20and%20The%20Washington%20Post.%20White%20is%20currently%20a%20fellow%20in%20the%20Finance%20Leaders%20Fellowship%20at%20the%20Aspen%20Institute.%20The%20two-year%20program%20consists%20of%2022%20fellows%20and%20seeks%20to%20develop%20the%20next%20generation%20of%20responsible%2C%20community-spirited%20leaders%20in%20the%20global%20finance%20industry.%22%2C%22image%22%3A%2243061%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Famanda-white-101a7515%2F%3ForiginalSubdomain%3Dau%22%7D%5D” title=”Moderator” el_class=””][vc_empty_space height=”10px”]
Key takeaways
Distressed debt opportunities will switch to Europe where a deeper recession promises more corporate failures than the US. Here creative destruction has already seen corporates take on losses, clear up and move on.
Elsewhere, the speaker reflected on how the debt cycle hadn’t run its course when COVID arrived – suggesting another correction may lie in the not-too-distant future.
As for the catalyst, changes in inflation and interest rates are obvious contenders but other factors that investors can’t figure out (like COVID) could just as easily surprise. That said, he warned that central banks are not letting go of the policy levers, and counselled against betting against the Fed.
The most obvious opportunities at the beginning of the crisis lay in liquid large cap companies. Next, the opportunity evolved with corporate restructuring by another swathe of companies (Virgin Atlantic and JCPenney, for example) running out of money.
Opportunities include businesses that are either resilient through a recession or which if cyclical, bounce back after a crisis because of their strong market share. Typically deals are private and not on the radar.
The asset class has a good sense of its own limitations. It doesn’t necessarily include investing in distressed tech assets because the pace of change is so rapid; by the time bankruptcy and restructuring processes are over the technology has changed. Elsewhere distressed debt investors avoid industries in secular decline and emerging markets.
Are you increasing your allocation to distressed debt opportunities as a result of COVID-19?[vc_line_chart x_values=”” values=”%5B%7B%22title%22%3A%22Yes%22%2C%22y_values%22%3A%2222%22%2C%22color%22%3A%22blue%22%7D%2C%7B%22title%22%3A%22No%22%2C%22y_values%22%3A%2259%22%2C%22color%22%3A%22pink%22%7D%2C%7B%22title%22%3A%22Unsure%22%2C%22y_values%22%3A%2219%22%2C%22color%22%3A%22mulled-wine%22%2C%22custom_color%22%3A%22%234cadc9%22%7D%5D”]
The big difference between the vaccine rollouts and the scale of the stimulus measures across the world could result in a K-shaped global economic recovery, with much of the developed world booming but poorer countries continuing to struggle. However the
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