Algebris Investments, the London-based multi-strategy credit and equities-focused hedge fund firm headed by Davide Serra, is diversifying its positions across credit markets amid a still-fragile recovery and “eerie mood” among investors.
The Algebris Global Credit Opportunities Fund – formerly known as the Algebris Macro Credit Fund – has increased its exposure to inflation-linked debt and convertibles in recent weeks, while maintaining upside convexity in gold.
Alberto Gallo, head of macro strategies at Algebris and portfolio manager of the Algebris Global Credit Opportunities Fund, said the strategy has also taken positions in idiosyncratic special situations in credit, which offer uncorrelated upside.
It meanwhile remains selective on emerging market debt, owing to mixed signals stemming from improving fundamentals offset by growing cases of coronavirus in countries such as Brazil, Mexico and South Africa.
The hedge fund strategy – which launched in 2016 trading a range of corporate and bank debt, long and short, on a both a directional and relative value basis – was recently renamed to highlight credit markets opportunities, though its strategy and management team remain unchanged.
In the firm’s latest ‘Silver Bullet’ macro commentary, Gallo pointed to an “eerie mood” among investors which is underpinned by concerns that the recent recovery remains fragile, in spite of multi-trillion fiscal and monetary stimulus packages.
Despite the “apparent calm” in financial markets, larger changes to the current economic and social equilibrium may be looming, Gallo added, noting that debt-based democracies may stretch themselves even further with larger deficits and more asset-purchasing programmes.
While the US economy is still below its pre-Covid level, the economy has fared much stronger than feared by investors, while Europe is proving more resilient than many investors thought before.
“In times of financial repression, we believe investors will need a dynamic, diversified strategy to defend their capital,” Gallo said of the prevailing market opportunities.
“We advise to diversify in alternatives that either generate higher yields, like credit, or protect against persistent low/negative real interest rates, like inflation-linked debt and gold, or offer upside in a better economic scenario, like convertibles.”
Algebris Investments was established in 2006 by founder and CEO Davide Serra, an Italian-born former UBS and Morgan Stanley analyst, and focuses on a range of credit, equity and non-performing loan markets.