Global Opportunistic Investing

By M. Isi Eromosele

The financial crisis of 2008/2009 resulted in sustained turmoil in the financial and real asset markets. While markets have recovered somewhat, opportunities continue to develop in several niche less liquid markets. Many assets with strong collateral and/or cash flow characteristics remain deeply undervalued and attractively priced. Additionally, the potential return on carefully selected discount assets should be high regardless of the pace of the continually slow recovery. For global investors who can pursue longer term, illiquid investments, now is a good time to explore and take advantage of opportunities that currently exist.

The Present Environment

Starting from 2009, world financial markets have staged some impressive rallies, helped by massive government intervention in the United States and Europe directed primarily toward the largest markets. Across the board, equity markets have benefited, especially those outside of the United States. Headline credit markets have also posted impressive gains. Developed non-U.S. markets represented by the MSCI EAFE rose more than 32 percent for the year and the MSCI Emerging Markets Index advanced more than 79 percent during this period of time.

The global market’s trend toward liquid assets in uncertain times can result in potentially attractive return opportunities for investors who can commit capital to certain illiquid investments. Illiquid investments generally have lower volume and wider bid/ask spreads that make it more challenging to enter and exit the market efficiently. As a result, investors with specialized expertise in these less efficient markets may be attractively compensated for bearing this type of investment risk.

While headline markets have started to repair, many illiquid and credit-sensitive assets have not experienced the same recovery in value. For instance, real estate, real estate mortgages, distressed municipal bonds, smaller mortgage backed securities, smaller corporate issues and commercial tax liens remain deeply distressed. Many of these assets continue to trade at deeply undervalued price levels despite having exceptional collateral and cash flow characteristics. This creates a target-rich environment that could produce potentially high returns an carefully selected assets.

Opportunistic Investing

Opportunistic investors seek a high return goal by taking advantage of asset price dislocation in alternative investment markets  and concentrating capital in the best current opportunities. Great investment strategies display strong underlying collateral or cash flow that provide a floor to the investment value, yet trade at deeply discount valuations and offer significant upside potential. These types of opportunities tend to be more readily available in smaller, niche and illiquid markets for a limited time and in small quantities.

Distressed municipal securities provide another potential example for an opportunistic investment strategy. Sustained difficult economic conditions mean that increasing numbers of smaller, non-traditional municipal bond deals have become distressed. This has created opportunities for experience investors to purchase bonds with high collateral values at steep discounts, as traditional managers sell bonds they can no longer own because of ratings downgrade. Typical candidates include hospital, parking, student housing and economic development bonds.

Investment Considerations

If you are seeking to potentially enhance your returns and have the ability to commit potion of your capital over a multi-year time frame, you may benefit from opportunistic investment strategies. These strategies can complement a more traditional, strategic approach to investment program management. Please, consider your investment objectives, risk tolerance, time horizon and liquidity needs before making an allocation to opportunistic investments.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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