Värde Partners Co-Founder and Co-CEO Speaks on Milken Summer Series PanelJuly 9, 2020
MINNEAPOLIS – Värde Partners, a leading global alternative investment firm, today shares commentary by Co-Founder and Co-CEO George G. Hicks from a recent Milken Institute panel titled “Credit Trends: Back From the Brink?”
Panelists discussed the severe levels of stress in credit before the Federal Reserve (the “Fed”) stepped in, the limitations of fiscal and monetary intervention, and the long-term implications for credit markets.
How the opportunity will play out over time
George detailed the types of investment opportunities that are likely to develop: “Public markets are still an important piece of the opportunity set, but it is going to shift quickly into more private opportunities, in the workout and value added, complicated opportunity sets. There will likely be some traditional bankruptcies and restructurings and some NPL plays, but it’s increasingly going to be a story – not just globally where it’s been true for a while, but in the US – where there may be more structured capital solutions, providing rescue capital, capital for extensions and the like.”
He went on to outline how varying levels of intervention will affect the global opportunity set: “Europe is an interesting one. The big thing we are all watching is whether the 750 billion euro stimulus package gets passed. If it doesn’t, I think that will be a big setback for the markets. Then, as you look around the rest of the world, a lot of emerging market countries do not have the capacity to bring the monetary or fiscal stimulus that we have had in the US. We know how much corporate debt has grown in the emerging markets.”
He concluded: “There will be a reckoning. There’s a reckoning ahead in the US and there’s a reckoning ahead globally.”
Early impact of government intervention
Reflecting on the early impact of the Fed’s actions, George noted: “The major response from the Fed has meant that significant parts of the credit markets are in great shape. The government averted Armageddon, massive bankruptcies and unemployment, which is great… however, you still cannot fix all the problems and those will play out in the time ahead. We are in a deep recession which will have consequences for credit markets, and parts of that are being masked by the Fed’s actions. I think what we are going to find is that it is easier to shut down an economy than it is to reopen it.”
The ‘Fed put’ and long term consequences for financial markets
George also raised concerns about unintended consequences of market intervention and called for the Fed to takes steps to address the risk of moral hazard: “I’d like to see increased Fed transparency. Going forward, the market could benefit from a better understanding of when and where the Fed will step in. It can have a positive impact in itself, but it can also let the market operate and have better price discovery. It’s hard to do…but if the market thinks it’s always going to get bailed out, some negative consequences will develop over time.”
Värde recently published “Värde Views: Unprecedented Government Intervention Will Not Prevent Historic Wave of Defaults” with additional commentary on the impact of fiscal and monetary stimulus to date and why these actions, while necessary, have limitations in their collective ability to prevent a wave of defaults as the credit cycle plays out.
About Värde Partners
Värde Partners is a leading global alternative investment firm with roots in credit and distressed. Founded in 1993, the firm has invested more than $70 billion since inception and manages over $14 billion on behalf of a global investor base. The firm’s investments span corporate and traded credit, real estate and mortgages, private equity and direct lending. Värde employs more than 300 professionals across 12 offices worldwide. For more information, please visit www.varde.com.