Carl Icahn is once again warning about an impending collapse in the junk bond market. The septuagenarian investor tweeted on Friday, “I believe the meltdown in high yield is just beginning.” In an interview on CNBC on the same day, Icahn called the high yield market “a keg of dynamite that sooner or later will blow up.” Although Icahn has been warning about the dangers of this risky market since last summer’s Delivering Alpha conference, where he chided BlackRock CEO Larry Fink for selling exchange-traded funds tied to illiquid junk bonds, there have been renewed concerns since Thursday, when Martin Whitman’s mutual fund, the Third Avenue Focused Credit Fund, said it will bar investor withdrawals as it tries to liquidate some positions.
“I think the average person that goes into this should basically be warned and understand the danger,” Icahn said in the television interview. He is concerned that energy companies and others borrowed large sums at lower rates than they should have and will now have trouble paying back this money. “The high-yield market is tremendously overpriced,” Icahn told his CNBC interviewer. “I’m not the only one saying it. A lot of intelligent people said it in the last two months.” He railed at high-yielding speculative instruments, which he likened to some of the risky securities that surrounded the housing market before it collapsed during the 2008 financial crisis.
On Friday, The Securities and Exchange Commission proposed a new rule that would limit the use of derivatives by mutual funds, ETFs, closed-end funds and business development companies, with the goal of reducing risk by limiting the amount of debt a fund may obtain.
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Another week, another hedge fund shutdown. This time it is New York-based LionEye Capital Management, the $1.5 billion, event-driven hedge fund firm headed by Stephen Raneri and Arthur Rosen. It is closing at year-end after suffering a 19 percent loss for the year through November, which caused many investors to redeem their money, according to Reuters. According to the report, LionEye suffered big losses from several recent activist targets: Men’s Wearhouse, GNC Holdings and Yahoo! Inc. It had managed as much as $2.5 billion earlier in the year.
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Nearly one-half of hedge fund firms plan to launch a new hedge fund by the end of 2016, according to a new global survey by PwC and the Alternative Investment Management Association, an industry trade group. Drilling down, nearly one-third of U.S. hedge fund managers and half of U.K. managers said they plan to trot out a new liquid alternatives fund.
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Tiger Global Management has made two new investments in private companies.
The New York firm led the $60 million Series A funding for Shenzhen Zijintongcai Investment Fund Management, a so-called sunshine private equity fund established in China’s Qianhai Shenzhen-Hongkong Modern Service Industry Cooperation Zone. The fund plans to emphasize equity, debt and mezzanine investments, according to published reports. Tiger Global also co-led the $25 million Series B financing of BlackBuck, an Indian online logistics marketplace.
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Hedge fund flows rose 0.83 percent December, closely in line with November, as measured by the SS&C GlobeOp Capital Movement Index. The firm says this was the largest December gain in the index since 2011.
