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Managers predict opportunities after Trump storm
by Lisa Lee
Global financial markets in April went on one of the wildest rides in history, breaking records as prices tumbled lower, and then setting more records on the rebound. Credit assets gyrated and CLOs were gripped by volatility. While markets have now calmed, caution remains.
US President Donald Trump sent shockwaves across the world on 2 April — so-called ‘Liberation Day’ — by imposing harsher-than-expected tariffs on trading partners. He then stoked uncertainty with a constant stream of policy course shifts.
While the trading system got a 90-day moratorium on many of the stiffest levies, market participants fear that extended uncertainty and the actual imposition of the tariffs could slow economic activity and increase corporate default rates.
We need to be prepared for a recessionary environment
Jennifer Kozicki
Co-head of global liquid credit
Ares
“We’re focused on understanding the broader potential impact in the market on consumer spending and capital investment by companies that could affect GDP growth,” said Jennifer Kozicki, co-head of global liquid credit at Ares. “Today’s environment does create opportunity from a credit perspective, but we need to be prepared for the implications of a potential recessionary environment.”
In the immediate aftermath of the tariff announcement, leveraged loan prices dropped, CLO deals paused (with the European market taking an extended break), and corporate credit spreads flared wider. While issuance is back on, spreads haven’t retraced and remain wider than earlier in the year. That can lead to some interesting investing opportunities, say investors.
“Investing through a period of market volatility and macro uncertainty can offer significant opportunities in CLO mezz and equity, but requires thoughtful capital structures, manager and vintage selection, as well as tactical, non-linear sourcing,” said Dagmara Michalczuk, co-chief investment officer at Tetragon Credit Partners.
Others are cautious and waiting for better buying opportunities. “In periods of disruption, we are watching for opportunistic investments. While we haven’t seen a significant number of those yet, we’ll look to accelerate our investment pace as those occur,” said Brian Stewart, co-head of corporate credit at Fortress.
In the face of volatility, a couple of asset managers forged ahead not just with new deals, but debuted new products. Mid-market private equity firm Kohlberg & Co became the newest CLO manager. It priced a middle-market deal. Apollo launched a new program that repackages large direct lending loans into CLOs.
