Vulture funds are circling troubled companies and that is why cash is king during a financial-economic crisis.
The world’s largest vulture funds are preparing to swoon on distressed assets in what could be a target-rich landscape with troubled corporate debt being the latest moveable feast.
The trickle-up wealth effect continues as vulture funds buy junk bonds as Fed cash buys trash, high risk corporate debt
While economies and peoples remain in lockdown the coronavirus stimulus has just pushed the Fed’s balance sheet past $5 trillion for the first time.
So the buy what the Fed is buying game keeps on rocking to the coronavirus tune, with corporate funds taking a front seat in a one- way bet scenario.
In the Fed’s latest QE to infinity program, the central bank has pledged to purchase up to 20% of the assets of US listed bond exchange-traded funds
There is even talk that the Fed, the world’s central bank by default is already buying stocks, although that has not been confirmed.
The Fed argues that its latest move is about building a bride in the corporate debt market to keep funds flowing but what it is also doing is the discount risk from the market, which is what should be pricing the debt.
The misallocation of capital continues with vulture funds seeing a quick kill speculative play in junk bonds
High yielding low priced junk bonds underwritten by the Fed buying could be the new moveable feast for vulture funds.
The near shut-down of the global economy has left plenty for vulture funds to feed on, reports market watch.
“There are now huge opportunities for distressed debt funds, particularly in the transport, retail and hospitality sectors” Stavros Siokos, managing partner at real estate asset specialist Astarte Capital said.
“Even core assets which are supposed to be risk-free, such as infrastructure, are at risk which is something we never expected to see in our lifetime,” he said.
“There are higher quality assets available — healthy businesses who are being affected short-term which otherwise would have had strong balance sheets are now becoming attractive to distressed investors,” said Katie May, director at InCloudCounsel, a legal technology company.
“We were surprised by the speed at which we have seen interest increase. Distressed debt investors have been waiting patiently during the long bull market,” she said.
Vulture funds underscore the opportunity of buying quality assets at bargain prices during a time of distress
Put simply, the Greatest Depression could provide some investors with the greatest opportunities in a lifetime. When a company goes bankrupt its assets are still there, when a country defaults the infrastructure remains intact, the only difference is that there is a transfer of wealth.