What Credit Bubble?

“We want credit with some hair on it,” says Värde Partners’ co-CIO, echoing GoldenTree and CQS leaders at the Milken conference.

Michael Hintz, founder of CQS (Dania Maxwell/Bloomberg)

Michael Hintz, founder of CQS

(Dania Maxwell/Bloomberg)

CQS, Varde Partners, and GoldenTree Asset Management still see plenty of opportunities in global credit, even though the markets are starting to resemble the heady days of 2007.

Speaking on a panel at the Milken Institute’s 2018 Global Conference, Joseph Naggar, partner at GoldenTree, said the firm is investing in Argentinian credit, for example, drawn by a combination of economic growth and a positive political environment. The firm is avoiding securities like triple-C bonds, which have recently rallied and represent a growing part of high-yield issuance.

[II Deep Dive: Consultants Tell Pensions to Embrace Leverage, Complexity]

Targeting complex assets proved to be a theme of the panel discussion, which focused on the state of credit markets. “We’re always thinking of the unusual opportunity,” said Sir Michael Hintze, founder and chief executive of hedge fund firm CQS. “We extract value through complexity. That’s how we can say credit isn’t dead.”

According to panel moderator Michael Milken, 75 percent of the issuance in 2017 was covenant-lite, meaning lenders agreed to few protections if companies face trouble. That compares to less than 30 percent of the market being covenant-lite in 2007 right before the credit crisis erupted.


Milken said the industry is also underestimating the amount of cash that family offices and corporations will spend on deal-making, in addition to the $1 trillion in dry powder that private equity firms have on hand to invest in the next five to seven years.

Ilfryn Carstairs, co-chief investment officer at alternatives manager Värde Partners, still saw credit markets as vast and heterogeneous, with a wide range of investment opportunities.

“That complexity piece is really at the heart and soul of everything we do,” he said. “We want credit with some hair on it.” To support its buying, the firm continually expands its analytical capabilities. “We think about every country, every asset class, as something that we have to build from the ground up,” Carstairs said. “We get too caught up in talking about a credit cycle as if it’s just one thing.”