(Bloomberg) -- As credit spreads tighten to some of the narrowest levels since 2008, alternative investment firm Värde Partners sees more opportunities in areas including commercial real estate mortgages and Asia Pacific private credit, according to an outlook report by the firm on Wednesday.
In credit markets broadly, investors have priced in relatively rosy economic scenarios, despite persistently high interest rates and signs of potential macro weakness, leading to tight spread levels and making it harder to find attractive investing opportunities, write Värde co-CIOs Brad Bauer, Ilfryn Carstairs, and Giuseppe Naglieri.
Overall the firm is cautious in the near term, seeing a smaller margin for error. But it also says there are plenty of “idiosyncratic” opportunities in some markets.
Higher interest rates continue to “drive stress and distress in both large rate-sensitive credit markets such as commercial real estate and in many idiosyncratic situations where companies or asset structures cannot sustain their balance sheets,” the report says.
For example, in commercial real estate, which is undergoing a longer-term process of revaluation and recapitalization, Värde is focused on senior lending at conservative levels of leverage but will make exceptions for higher quality sponsors. There are also opportunities to finance REITs that are overleveraged and struggling to address upcoming maturities, it says.
In Asia Pacific private credit, the firm sees opportunities in India and Australia. The region offers growing markets where there’s demand for credit, and pricing remains disciplined, according to the note.
In asset-based credit markets, Värde sees opportunities in providing liquidity to commercial borrowers backed by collateral including equipment, inventory and receivables as well as lower-balance loans to smaller and mid-sized firms across industries from manufacturing to technology, the firm wrote in an email.
Värde was founded in 1993 and specializes in credit and credit-related assets, managing over $13 billion.
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