Opportunities on the Horizon: Investing Through a Slowing Economy

Thematic updates | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 37 Our views Potential opportunities to earn two or even three times the rate of government securities by lending to fundamentally sound companies at attractive valuations are unusual and often fleeting. As markets contemplate a recession of unknown length and severity —and as banks preserve capital amidst deposit balance uncertainty — skilled bond managers may take advantage of market dislocations. A decline in bank lending, lower passive investment flows and slowing collateralized loan obligation (CLO) issuance are symptoms of concerns with future corporate profits. But that concern seems overblown relative to prior recessionary periods. In the alternatives space, suitable investors can choose from diversified credit hedge funds, private BDCs, distressed credit hedge funds and opportunistic private credit funds to seek opportunities for their portfolios. Each of these strategies seeks to take advantage of volatility and dislocations created from the uncertainty of capital market access. With flexible capital, they are patient and step in as a liquidity provider in order to take advantage of credit opportunities.