The Opportunity Set
The credit crisis presents investment opportunities at the top end of the capital structure especially within distressed credit, leveraged loans, capital structure arbitrage, direct lending
We believe the current dislocation provides the opportunity to buy substantially undervalued assets, especially at the top end of the capital structure, at huge discounts. Besides, credit strategies currently do not need to deploy leverage to achieve high-risk adjusted returns
Investors should look for bargains ...
The strategies employed by the manager needn’t be limited to buy-and-hold. For e.g., turnover can drive the profitability of the investment more than the upward trend in prices
Moreover, the manager should have market skills and connections that translate into a favorable value proposition for the investor. These include:
Access to private deals
Established distribution channels that minimise hold time and maximise price
The ability to JV with other market professionals to avoid overpaying and to increase marketing muscle
A Fund as a Primary Factor or Re-factor
While commercial banks have long been the primary source of factoring finance, there are structures that make it possible for a private fund to stand in those shoes instead, as a primary factor or, more likely as a re-factor.
"Factors, on the other hand, may see re-factoring as a way of leveraging their infrastructure - i.e. by retaining responsibility for servicing the additional receivables financed by the re-factor. Re-factoring derives value from the same sources as factoring, but the re-factor bears a more complex relationship ..."