Boaz Weinstein isn't selling, he's buying.
Or trying to buy anyway, distressed assets from a couple of the fund providers like Blue Owl for 65-80 cents on the dollar. We talked about this the other day. I don't think the takeaway is to also try to buy distressed private credit assets. I'm not even sure what that would look like, Weinstein is trying to assets out of funds like Blue Owl and the others, so to buy shares would appear to mean buying a fund that just sold on the cheap if that's what happens.
What the point is that we can take away from is about not panicking when things go poorly for random holdings. If you include sector funds in your strategy, I do, a sector isn't going to go to zero. If you've sized it correctly then there should be no need to sell just because it is down. To Weinstein's point, it would be a time to buy pessimism as he puts it. The better sale would be to sell excessive optimism. In January I shaved down SPDR Metal and Mining (XME) by about 20%. It doubled in a year which is great but maybe excessive.
I'm not a buyer of the private credit pessimism. The whole space reminds me of trying to hold onto an M80 but without the Bitcoin-like upside potential. I take that back. The common stocks of the private credit companies do have that potential but that would add a lot of volatility to a portfolio. We look at Blackstone (BX) frequently for blogging purposes. It is down to $107 from $199 in November, 2024.
I don't think there's a reasonable risk of it failing, might not be as confident in Blue Owl, but while I don't doubt it gets back to $199 and higher eventually, maybe the path back to $199 goes through $60 first. I don't know either way in terms of price of course but in terms a volatility, I would expect the moves to be huge in both directions. Including that sort of volatility in a portfolio makes sense but again, it needs to be sized correctly and considered with something else that might be just as volatile. Having 5% in four or five holdings with this kind of volatility is going to be painful if the market whooshes down and that would increase the odds for panic selling for the investor who didn't understand what they were getting into.
We've been talking about redemption requests impacting private credit funds and that appears to now be happening with Cliffwater. I haven't seen any reports that Cliffwater's assets are impaired so assuming they are not impaired, a bad outcome could just simply be a sort of contagion effect. People believing the entire space is in trouble could be looking for liquidity anywhere or as we quoted in a different blog post, no one wants to be the last one out.
"Hi there, it's Cliffwater. I need to sell some paper right now to meet redemptions."
"Hi Cliffwater. How's 85 cents sound?"
These things are complicated and expensive in addition to being illiquid.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
No comments:
Post a Comment