Institutional Investors Eye Distressed Debt

Institutional investors such as pension funds and endowments are eyeing more distressed debt opportunities, anticipating that a recession will allow them to profit from the debt of struggling companies.

“There are lots of people who anticipate we’re headed into a recession and think we should be opportunistic and get in front of this and try and raise the capital now so that we have it in place if and when things get really, really bad,” one unnamed source told Reuters.

Currently, around $78 billion committed to distressed investments globally are unallocated, according to data provider Preqin. Last year, distressed funds returned 15.6%, over the 10.2% that the broader hedge fund market returned. In 2020, they experienced gains of 11.8%, in line with the industry, data from HFR show.

In May, BondBloxx Investment Management launched three high yield corporate bond ETFs track ratings-specific sub-indexes of the ICE BofA US Cash Pay High Yield Constrained Index: the BondBloxx BB Rated USD High Yield Corporate Bond ETF (XBB ), which seeks to invest in bonds rated BB1 through BB3; the BondBloxx B Rated USD High Yield Corporate Bond ETF (XB ), which seeks to invest in bonds rated B1 through B3; and the BondBloxx CCC Rated USD High Yield Corporate Bond ETF (XCCC ), which seeks to invest in bonds rated CCC1 through CCC3.

Launched in October of 2021 to provide precision ETF exposure for fixed income investors, BondBloxx was co-founded by ETF industry leaders Leland Clemons, Joanna Gallegos, Tony Kelly, Mark Miller, Brian O’Donnell, and Elya Schwartzman. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.

“Our conversations with investors have reinforced what we already knew – there is significant demand for more targeted fixed income products,” said Kelly. “Our initial product suites aim to create a full toolkit for high yield investors looking to implement their specific views on the market, and we anticipate extending this approach to other fixed income asset classes.”

For more news, information, and strategy, visit the Institutional Income Strategies Channel.