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Bailey McCann, Opalesque, New York:
New York-based Spring Mountain Capital is making a bet on high yield and distressed municipal bonds. The firm created a new team, and hired Gary M. Fuqua, founder of Ofelia Capital to lead the team. Spring Mountain has an opportunistic investment approach and sees significant opportunities up and down the rating scale. The team will complement existing teams in funds of funds, hedge funds, private equity, actively managed private vehicles, and existing investment grade municipal bond investments managed through its affiliate, SMC Fixed Income Management, LP (SMC FIM).
"Munis are generally misunderstood by research, but it is a $3.75tn market with a variety of opportunities," says Garey M. Fuqua in an interview with Opalesque at the SkyBridge Alternatives Conference. He explains that historically, traditional buyers of municipal bonds get out of these investments once they become distressed or won't get into them at all if they are unrated. This creates an inefficient market with downside protection provided by the real assets used as collateral.
"The systems in munis are not as robust as what you see in equities. Its coming around but it is still 5-10 years out. Historically, it has been harder to get information like audits, so there are some arbitrage opportunities. Overall, there is limited access to capital and so we are seeing a premium for that. There is also an uptick in private placements," Fuqua said.
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