Deutsche Bank sees US$300b stash debunking credit doomsday
It is natural for bond buyers to be pessimists. It's part of their DNA. But they are taking the whole role of worrier too far by giving in to the pervasive concern that a credit-market Armageddon is coming.
It is natural for bond buyers to be pessimists. It's part of their DNA. But they are taking the whole role of worrier too far by giving in to the pervasive concern that a credit-market Armageddon is coming, according to strategists at Deutsche Bank.
While cash may flee mutual funds when sentiment turns and Wall Street may have little interest in making markets, private-equity firms have raised at least US$300 billion to invest in credit and are likely buyers in a selloff, said Oleg Melentyev, who heads US credit strategy at Deutsche Bank in New York.
"This capital largely did not even exist" seven years ago, leading up to the credit crisis, analysts led by Melentyev wrote in a report released on Friday.
The ruinous scenario of "a complete vacuum of bids" in a downturn was "not likely … because of the presence of this patient and high-quality capital".
Carlyle Group, Blackstone Group and KKR are among the firms that have diversified their traditional leveraged-buyout businesses in part by boosting their debt investments.
Ares Management, the credit and private-equity manager that went public in May, has the highest level of capital available to invest in its 17-year history, Greg Margolies, who leads Ares's tradable credit group, said in July.
The US corporate debt market has swelled 46 per cent since 2007 to almost US$7.7 trillion, according to the Securities Industry and Financial Markets Association, as companies have sold record amounts of bonds, locking in cheap borrowing costs during almost six years of near-zero interest rates from the US Federal Reserve.
