Global Value and Income Dispatch

Beware of the liquidity illusion in the quest for higher yields.

  • Adam Gittes
23 Jan 2019
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When our team is on the road, the most common question is “where are the risks building in this cycle?” Much has been written about the explosive growth in leveraged loans, as well as rising corporate leverage coupled with the lack of covenants (i.e. covenant-lite loans) that are supposed to protect investors’ claim value. In our view, while loosening lending standards are concerning, they are unlikely to create a systemic risk.

We believe the key risk instead lies in products that invest in less liquid assets that are leveraged and/or packaged into vehicles that offer either monthly or quarterly liquidity; hence, a “liquidity illusion”.


The views expressed are those of the portfolio manager as of January 2019, are subject to change, and may differ  from the views of other portfolio managers or the firm as a whole. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice.

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