Private equity commitments are not invested in one lump sum but rather deployed over 4-5 year investment periods, making it impossible to predict the predominant investment environment for a given fund or strategy. This underscores the need to build diversified private allocations across strategies and vintages to achieve optimal results.
• $97 billion in high yield bonds were issued in Q1 2017 compared to $51 billion in Q1 2016, on top of record amounts of "junk" issuance since the financial crisis1
• There are now about $2 trillion worth of US dollar, non-investment grade bonds outstanding2
• The covenant-lite share of the S&P/LSTA Leveraged Loan Index now stands at over 70%, the highest level on record
Interest rates are widely expected to go up
• With inflation close to the Fed’s 2% objective and the economy at full employment, the Fed will need to keep raising interest rates or risk overheating the economy3
• According to Fed Chair Janet Yellen, the FOMC’s baseline forecast of two additional rate increases this year and three more in 2018 is not conditioned on expectations for fiscal stimulus4
• Rising rates will put pressure on a large universe of weak corporate borrowers
• While energy has been a hot spot for distressed investors in recent years, the retail sector is now facing significant distress driven by changes in distribution models and consumer behavior
• Retail bankruptcies have hit a record pace this year, with 14 chains announcing they would seek court protection as of April 6, 20175
(2) Acciavatti, Peter, Tony Linares, Nelson Jantzen, CFA, Rahul Sharma, and Chuanxin Li. “Credit Strategy Weekly Update,” J.P. Morgan North American High Yield Research, January 6, 2017
(3) Guggenheim Second Quarter 2017 Fixed Income Outlook
(4) Guggenheim Second Quarter 2017 Fixed Income Outlook
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