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- Longtime credit investor Dan Zwirn, currently the CEO of $1.3 billion Arena Investors, laid out how the pandemic has created opportunities for investors like himself in industries like aviation, energy, and retail.
- Zwirn, who was forced to close his old fund in 2008 after accounting irregularities, said the current crisis is "a lot greater" than 2008's financial collapse, as all industries have been affected.
- Still, opportunities in industries with real assets, like airlines and energy, are "obvious," he said. "You're picking dollar bills off the ground."
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There are a lot of things that are staggering, according to Dan Zwirn, the CEO of $1.3 billion Arena Investors and a longtime credit investor.
The "sheer volume" of all kinds of debt — corporate, subprime, municipal, and more — is staggering. The defaults that are coming for consumer loans for housing, cars, college, and more is staggering. And the opportunities for savvy investors to make money off the disruption caused by the novel coronavirus pandemic is staggering.
Zwirn, who's former, eponymous fund was shut down in 2008 due to accounting irregularities, is, in the immediate future, targeting industries that have felt the impact of the pandemic most acutely. Airlines, energy, and retail are all sectors that he singled out, and companies in those sectors have tried to survive with stimulus money from the government and poison-pill contracts with shareholders to protect against activist investors.
"The massive size of the interventions has at least halted some things," said Zwirn in an interview with Business Insider, "but these are areas that are indisputably up a tree."
The credit markets were roiled by the pandemic like the equity markets, as managers invested in securities reliant on people and businesses paying their rents suddenly faced margin calls and redemption requests that would have been difficult to meet. Big-name shops like Angelo Gordon, CQS, and Canyon Partners were all hit hard, but a source familiar with Arena's performance said the firm's strategies have been flat or slightly positive for the year.
In a recent letter to investors, reported originally by Institutional Investor, Zwirn said it's the best opportunity to invest in aviation companies since 2001. Speaking with Business Insider, he said that airlines were already in trouble as passengers "had to be packed in like sardines to make money."
With the future of flight travel uncertain, Zwirn believes money can be made by financing purchases of airlines' assets, like bigger planes that can be turned into cargo planes.
"The arbitrages can be very great," he said.
Deals like this can be applied to industries like energy and retailers with a brick-and-mortar presence, he said, and it doesn't need to be over-thought.
"These are just the ones that are completely obvious," he said. These industries have "real assets" that are able to be sold, and are in desperate need of cash.
"It's a machete decision, not a scalpel decision ... You're picking dollar bills off the ground."
Eventually, Zwirn expects to turn his attention to consumer debt, where he expects defaults and lenders unable to collect to become the norm.
"It won't be as obviously concentrated as it was with mortgages," he said, comparing it to the 2008 financial crisis. Auto loans and student debt will be of particular interest once data starts coming in on default rates.
And, compared to 2008, the pandemic might just be worse on the average person and their ability to repay, as well as the financial system at-large. Compared to 2008, the current pandemic has left banks with relatively clean balance sheets, but put a lot of the risk on the books of harder-to-regulate alternative investors, Zwirn said.
This means that in a crisis, which hit when interest rates were already low, governments are limited in their ability to bailout industries in trouble.
"It leaves you in a place where you can't just take over AIG and provide liquidity for 10 or 12 banks," he said.
"It certainly has the opportunity to be [worse than 2008], no question."
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