Värde Views: Phases Of A Credit Cycle

A map of what’s to come

Excerpts from a webcast
Originally published in the April | May 2020 issue

George Hicks and Ilfryn Carstairs, co-CEOs of Värde Partners, opine on the market environment, the state of Värde’s business, and what investors should expect to see in the coming weeks and months as the credit cycle unfolds. Below are excerpts from a webcast to their investors that took place in early April, 2020.

Market environment 

George Hicks
In my more than 30 years in this business I have invested through many credit cycles. Some cycles have been in geographies, some in industries and then there are big systemic cycles like we saw in 1991, 2001 and 2008. Now we are clearly in one again, and at the start of a recession. None of these cycles have been the same, they evolve over multiple stages, and while some things are clear now, others will emerge over time. Clarity only comes with hindsight. For that reason, we rely on Värde’s deep expertise in credit that we’ve developed over the past 26 years, and we rely on the strength of our global platform to enable us to pivot to the opportunities where we see the best relative value. 

Ilfryn Carstairs
The impact of Covid-19 – and the speed of its disruption to society and markets – is unprecedented. It is clear that we are at the start of a major, connected credit cycle. In our view, we expect this will be as bad, or worse than, the Global Financial Crisis of 2008-09 (GFC).

The GFC, though, was about the fragility of the financial system at that point in time. This has been a physical disruption, a sudden stop, and there remains an open question on the depth of this event, which is driven by the open question around the duration of physical disruption. As we’re still in the early stages, though, the range of potential outcomes remains wide.

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