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Good bond/distressed debt managers


petec
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Reading Chou's annual report piqued my interest.  Does anyone know of really good bond or distressed debt managers who write informative letters?  There must be plenty but I don't know of any.

 

Thanks in advance,

 

Pete

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Does anyone know of really good bond or distressed debt managers who write informative letters?  There must be plenty but I don't know of any.

 

Howard Marks...?? ;)

 

Gio

 

Ha ha - yeah I heard he was ok!  I'm looking more for someone who actually discusses specific ideas and values them - i.e. someone I can learn the techniques from.

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I'm looking more for someone who actually discusses specific ideas and values them - i.e. someone I can learn the techniques from.

 

I doubt that anyone discusses specific ideas in his/her letters… As for the techniques I think Packer (if I am not wrong) once suggested a book he thought was very useful on the subject… Though I cannot remember its title right now…

 

Gio

 

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I'm looking more for someone who actually discusses specific ideas and values them - i.e. someone I can learn the techniques from.

 

I doubt that anyone discusses specific ideas in his/her letters… As for the techniques I think Packer (if I am not wrong) once suggested a book he thought was very useful on the subject… Though I cannot remember its title right now…

 

Gio

 

Packer recommended How to make money in junk bonds by Robert Levine

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Marty Whitman also has a written a good book called Distressed Investing.  The technique is primarily to value the business then decide where in the capital structure you want to invest.  You can value each piece of the capital structure and determine which piece has the best risk reward.  Francis has a good presentation from a few years ago at the Ivey investment conference about some distressed ideas.  The Third Avenue High Yield Fund reports also has some current examples they are invested in and there is also a webcast from there conference last year that was pretty good.  The Third Avenue guys are also good distressed investors.

 

Packer

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Possibly a good time to buy TFCVX in my opinion. Spread expansion has murdered them the last 6 months. I think average price is in the 70s and yield is double digits. Most recent quarterly is almost giddy with how great they are positioned. They do go into some detail about individual positions and how their "fulcrum security" philosophy works. My humble opinion is that some of their positions are priced more like zero coupons and hence much more volatile than in index performing bonds.

 

My only hold back is that they're positioned for a continued economic recovery, which appears to be sputtering. The '40 act structure will be a liability given further spread expansion.

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Is a MF the best way to get exposure to distressed debt? Seems like a horrible asset/liability match. Like, 3rd Ave has done <8% since inception in 2009, which was the best period of distressed investing.

 

I think even DBL might be a better HY fixed income choice given the inherent diversification between agencies and non-agencies. I think you can actually probably apply a little leverage on a DBL fund.

 

I have been thinking about how to get exposure to distressed for awhile, but I still haven't bought anything (although BRK, LUK, LMCA, etc typically do very well when there are an abundance of opps).

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Is a MF the best way to get exposure to distressed debt? Seems like a horrible asset/liability match. Like, 3rd Ave has done <8% since inception in 2009, which was the best period of distressed investing.

 

I think even DBL might be a better HY fixed income choice given the inherent diversification between agencies and non-agencies. I think you can actually probably apply a little leverage on a DBL fund.

 

I have been thinking about how to get exposure to distressed for awhile, but I still haven't bought anything (although BRK, LUK, LMCA, etc typically do very well when there are an abundance of opps).

 

Yeah, as much as past performance doesn't determine future results, it is hard to get excited about putting money in a distressed fund that returned just over 7%/yr from 2009-present. That said, two caveats are (a) they have very much underperformed over the past year, so the numbers looked a lot better from '09-13, and (b) the fund inception was late 2009, at a point when the best bargains were long gone.

 

But really, distressed debt is an asset class you expect to be able to do OK in virtually any economic environment, because there are always bad businesses and bad capital structures even in good times. But the big money returns come from the funds raised in 08, in early 2000s, in late 80s, etc. You got 20, 30, 40% IRR or more from the best funds in those years. The returns in other environments can be good but will generally not be amazing.

 

And now is a particularly tough time to get into this market. There has been a significant structural change in the market over the past two decades, in which distressed debt is now a legitimate asset class, and tons of funds allocate capital towards distressed or are dedicated distressed players. And so in an environment like today where there are few big distressed opportunities, things easily get bid up to levels where the risk/reward is hardly attractive. Caesars debt a year ago was ridiculously overpriced (second-lien, anyway) but plenty of "good" funds piling in because, what else is out there that you can make a big position out of? With energy, you hear of all the money raised to pile into distressed energy debt; a lot of that may be talk vs. real money, but still, that gives an idea of the sentiment of the market today.

 

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