Government intervention in markets around the world has decoupled the serious damage occurring to enterprises from how securities associated with those enterprises are priced, says Arena Investors CEO Dan Zwirn.
Arena’s current focus is on assets with strong income flow that are not a beneficiary of the wholesale buying by monetary authorities—and therefore where prices may move independent of intervention. These include oil and gas credit, private transactions in aviation, retail liquidations, and small business lending in North America.
In oil and gas credit, in particular, hard assets are trading at very favorable levels—without requiring investors to take commodity price exposure.
In time, there will be “a reckoning” in the performance of securities such as leveraged loans, commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS), Zwirn says, but at current prices, Arena is not buying in those areas.
The “experiential leg of the stool” has been taken out from under the retail sector because of COVID, making that sector essentially a pool of intellectual property, inventory and leaseholds in real estate that need to be fundamentally restructured. Arena is involved in lending against and liquidating that collateral.
Because COVID-inspired intervention will continue and even increase, there will be a gradual debasing of major-market currencies and a resulting focus on gold. But a lack of cash yield makes gold less attractive than what Zwirn calls “idiosyncratic yielding assets.”