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From Benedicte Gravrand, Opalesque London: Louis Gargour, one of LNG’s two principals, and manager of the LNG Special Situations Fund, explains why we are currently in the first stage of a three-stage cycle.

From the monitoring of credit cycle dynamics, LNG identifies stressed debt, and believes that banking leverage will become more greatly restricted as the year progresses, that this will lead to rising bankruptcy levels and the emergence of highly lucrative distressed debt opportunities. The manager continues to maintain a cautious approach as history tells that bear markets can and do have multiple sharp rallies.

Distressed is becoming interesting Louis Gargour is currently seeing an increase in client inquiry in distressed (debt and equity) in the special situations fund. This asset class is beginning to produce interesting opportunities as a result of market distortions and overleveraged balance sheets.

He has been running similar strategies for a long time and has been in this sort of situation in the last market cycle (he made a lot of money in 2003.) He found that the stress pattern has three stages. Here is how he described them to Opalesque.

1. Macro-economic downturn “The first stage (which we are currently in) is where macro-economic outlook is negative,” he said. “Expectations of consumer spending patterns makes us think retailing, consumer discretionary, automobiles, l......................

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