Alternative Investment Opportunities Through a Slowing Economy

Furthermore, structuredcreditmarkets are relatively inefficient, andoften face pressure in less liquidmarket environments. These selloffs can bemagnified by forced selling from daily-liquid vehicles facing redemptions. As a result, spreads across residential and consumer debtmarkets have widenedmeaningfully over the last twelvemonths, even doubling in certain subsects of the market. Certain hedge fund strategies can act as liquidityproviders to forced sellers by utilizing free capital to opportunistically rotate into high-qualityassets that are selling at steepdiscounts for non-economic reasons. While the abilityof companies to access the capital markets saw some relief early this year witha 12.5% increase in leveraged loan volume in the first twomonths of 2023over the last twomonths of 2022 7 , pressures from the financial sector continue to challenge access to creditmarkets. Given the rapid rise in yields and the uncertainoutlook for corporate profits, both credit and equity markets have largely remained closed to companies wishing to raise capital sincemid-2022. The few borrowers who are able to come to the publicmarket will need to sacrifice on structure and price to stimulate interest, providingbond and loan investors betterprotectionandhigher yields onperforming credit. The average for a unitranchemiddlemarket loan has risen to 680 bps over the SecuredOvernight Financing Rate (“SOFR”), driving new issue rates near 12% ( FIGURE 8 ). 7 FIGURE 8 : New Issue Yields Cont inue to Rise 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% Yield BB B Source: LCD as of March 31, 2023. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of anyspecific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. 7 LCD, as of March 31, 2023 OPPORTUNITIES | WEALTH OUTLOOK 2023 | MID-YEAR EDITION │ ALTERNATIVE INVESTMENTS | 12