In this environment, we expect anemic revenue growth but continued margin expansion, increased corporate restructuring activity (spin‐offs, mergers, and the like), and earnings that will frequently surprise to the upside. Thus, for equity investors, it is a stock picker’s market on both the long and short sides.
In debt, following the appreciation in the market and our portfolio in performing and stressed corporate credit, we have shifted our focus away from spread tightening trades to distressed situations and restructurings. We have found several exciting opportunities to create fulcrum securities at attractive valuations, and we anticipate many more to come as the ill‐advised 2005‐07 vintage leveraged buyout transactions begin to mature. As mentioned above, we think that mortgage securities, given the inefficiencies and opaque nature of the market, still represent good value at the 15% IRR level on specific, well‐diligenced issues we are able to source.
Read the complete commentary