A new edition of RankiaPro Latam's quarterly magazine was published this week. RankiaPro Latam, which provides information on financial markets to asset management professionals.. The edition contains a special on alternative assets, which seeks to highlight the role that alternative funds have played in recent yearsin a context of low or even negative interest rates.

In that scenario, the magazine stresses that "alternative funds have been relevant in providing more resilient strategies in periods of uncertainty," and gathers opinions from different experts on the strategies they are betting on for the coming year, including. Nelson Haase, MFO Senior Advisor at Fynsa.:

"Under the current market context, marked by the intense fight against inflation, financial conditions have become more restrictive, access to credit and refinancing debt has become more difficult and expensive for companies and much liquidity has been withdrawn from the markets. This has also affected Private Equity funds, which had been the workhorse in this asset class. Today we see that the cost of debt to finance acquisitions has become an important anchor for the performance of these funds, so much so that an acquisition of a company that is leveraged 1 to 1, only because of the cost of debt, its expected return drops from 16% to 11%. In addition, it is difficult to find financing for deals, or to find companies with less demanding valuations. All these factors point to the fact that this vintage should give us annualized results lower than what we are used to, closer to 10-15%. A detailed look at the accumulated dry powder in this asset class, and its increase over the last 12 months, shows the increase over the last 12 months, suggests the difficulty for managers to find deals; we have all seen how the IPO's, SPACS and M&A's market has dried up over the last 24 months, which in the future could translate into an underallocation within the portfolios that are still invested in these vintages.".

It is here where we believe that a space opens up on the debt side of the market for Distressed Debt. The less liquidity we find in the market, the greater the pressure that these managers can exert on the purchase price of an asset.. Remember that generally these trading processes are complex, with few players and shallow markets, which amplifies the situation in favor of the manager, improving the risk-return ratio of the strategy, where in contexts such as the current one we can expect net returns between 15 - 20% for the investor.

In the current environment, since the FED started with its rate hike program, we have observed how bankruptcy or "Chapter 11" announcements have increased in the US, from companies that have not been able to navigate this new scenario, which generates a fairly wide dealflow to look at and be selective. Another point to consider is that unlike what happens in "healthy" markets, the acquisition prices of corporate debt hover between 65 vs. 80 below par respectively, which allows acquiring assets with a "cushion" of appreciation and a greater potential upside. For the above, we believe that to capture the value that exists today in these strategies it is key to enter with a partner that has a broad and proven track record such as Monarch, who is raising its sixth fund: Monarch Capital Partners VI.

Who is Monarch? Distressed debt manager with more than 20 years of existence (and partners working together for more than 30 years). Today they manage US$ 12.5 bn and have invested US$ 60 bn throughout their life. They manage a single strategy, full focus. One team, one process, one investment committee. Very aligned: 3%+ of GP committment is being invested in the same assets as those of their clients".

You can read the complete magazine here.