Crises open opportunities
EVENT-driven investing is on the rise, with many opportunities displaying a capacity to secure returns for investors willing to look at the potential upside of a peculiar set of circumstances.
The special situations could include global conflicts, war, pandemics and other unforeseen disasters that could result in arbitrage or capital gain returns. Distressed and special situations have presented themselves far more frequently over the past decade than they have in the past 30 years.
The past five years alone have included devastating wildfires in Australia and California, a global pandemic, a close call with a coup in South Africa, extreme flooding in KwaZulu-Natal and the illegal invasion of Ukraine by Russia.
The crises are certainly occurring more frequently, and have almost become the new norm, presenting investors with more special situations than one might imagine there could be.
This is reflected by our global market, which remains volatile, with numerous interest rate hikes, sluggish growth and economies that continue to contract, forcing investors to find real returns outside their traditional investment vehicles in an economy stifled by great crises and concerns.
Investors will need to be agile in their investment style in order to not miss the opportunities presented by the disasters, which include new emerging and distressed debt markets that might be able to provide high yield returns.
Distressed corporate debt is another avenue and includes high quality company debt which finds itself in market dislocation and is therefore undervalued. One could also buy and hold onto securities until the market recovers and the price rebalances, generating significant capital gains.
Naturally, such an approach would require a sound investment strategy against a balanced risk-reward ratio that must be established from the onset. Investors must understand this is a different high-yield investment environment and should hold the appropriate risk appetite for special situation investments.
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