Jon Close for Credit Flux August 2016.
Credit hedge fund managers are looking for “technological disruption” as a source of blockbuster returns for their investors. For the most part, the technology industry has been the domain of private equity and venture capital firms because tech companies tend to be asset light and rarely need debt. However, some credit managers have overcome this by looking at how technology is affecting various other markets.
Former Serone Capital Management partner Alex Vaskevitch, for example, launched his long-short credit fund manager ALVA Capital last year. He says that ALVA is eyeing sectors that are undergoing secular decline by investing in companies that can adapt to new business models, while also going short companies that fail to acclimatise.
“I used to manage a high yield portfolio and I noticed that all of my losses came from companies that were in industries that were being disrupted,” says Vaskevitch. “The companies all thought they had a management team which could solve the problem and that the disruption was over-hyped.”
London-based Vaskevitch indicates that his new fund will take advantage of such situations by shorting the debt of firms with managers that employ an “ostrich strategy” by ignoring warning signs and focusing on current cash flow models.
DVD rental company Blockbuster, which failed to adapt to the new wave of technology and was eventually overtaken by Netflix, is a prime example. “The debt of these companies is often dislocated as investors focus on what appear to be decent revenue numbers in the short term,” adds Vaskevitch.