Hedge Fund Managers on Structured Finance, Credit & Risk Management | SALT Talks #12

TL;DR

Structured credit markets experienced a severe dislocation in March due to the pandemic, but have started to recover. The experts predict attractive returns in the mid to high single digits, with opportunities in multifamily and non-agency mortgage-backed securities.

Transcript

hi everyone welcome back to salt talks my name is John Darcy and the managing director of salt the global thoughtful at the intersection of finance technology and geopolitics assault talks are a series of digital interviews that we've been hosting in lieu of our in-person conference the salt conference which takes place annually in Las Vegas and we... Read More

Key Insights

• 🧑‍🏭 The sell-off in structured credit markets in March was largely driven by technical factors and liquidity concerns, rather than fundamental issues.
• 💳 The recovery in structured credit markets has been supported by the Federal Reserve's intervention and stimulus measures.
• 🥹 Multifamily and non-agency mortgage-backed securities offer attractive returns and have shown resilience in the face of the economic downturn.
• ☠️ Interest rates and mortgage rates play a crucial role in the performance of the structured credit market.

Questions & Answers

Q: How did the sell-off in structured credit markets in March compare to previous market downturns?

The sell-off in March was predominantly driven by liquidity concerns and technical factors rather than fundamental issues. It was an abrupt and highly volatile period, but the market has since rebounded.

Q: What are the key factors driving the recovery in structured credit markets?

The panelists point to the Federal Reserve's intervention and support measures, as well as the improved fundamentals in sectors like multifamily and non-agency mortgage-backed securities. The forbearance programs and fiscal stimulus have also played a role in stabilizing the market.

Q: What are the expected returns in the structured credit market?

The experts predict mid to high single-digit returns on an unlevered basis over the next 12 to 18 months. The market is currently trading at attractive valuations, offering potential opportunities for investors.

Q: How do interest rates and mortgage rates impact the structured credit market?

Interest rates have been at historic lows, which has contributed to the attractiveness of the structured credit market. Mortgage rates have also declined, leading to increased refinancing activity. Lower rates can support the recovery in the real estate market.

Summary & Key Takeaways

• Structured credit markets, which suffered from the pandemic and economic shutdown, are now recovering.

• Three experts in the structured credit space discuss the opportunities and risks in the market.

• The panelists focus on multifamily and non-agency mortgage-backed securities, which offer attractive returns and have resilient fundamentals.