Distressed investment specialist Schultze Asset Management eyes ‘late stage’ catalyst trades

Schultze Asset Management, a distressed investing specialist which targets a range of restructuring situations on a long and short basis, is forecasting a slew of investment catalysts in this area as the global economy gradually recovers from the coronavirus pandemic.

Founder George Schultze said the best opportunities in the distressed investing space during 2021 are likely to be in post-reorganisation equities, which offer event-driven return catalysts such as spinoffs, M&A, special dividends, and stock buybacks. 

“Post-distress equities are those stocks that formerly went through a reorganizasion and/or recapitalsation as a result of their prior distress – this phase represents the ‘late stage’ bucket of investing in distressed deals,” Schultze told Hedgeweek.

“These catalysts will help drive the values for select post-reorganisation names up closer to fair value.”

He believes 2021 will also offer a steady supply of new distressed situations, as the global economy continues to slowly recover from the coronavirus pandemic and certain companies struggle to meet their excessive fixed debt obligations.

“This should play well into the opportunity for short selling the stocks of companies headed into distress – the ‘early stage’ bucket of distressed investing.”

Earlier this month, the firm appointed hedge fund veteran Angela Lui as managing director and head of business development to lead strategic initiatives to expand its client base.

Lui was previously director in the investor group at Autonomy Capital, which focuses on thematic, multi-asset class investing across developed and emerging markets. Before that, she was director of marketing and investor relations for global macro hedge fund Sibilla Capital, and earlier was principal and vice president at hedge fund platform Malbec Partners.

Schultze said investor appetite for distressed investing strategies gathered pace during 2020 with Covid-19 and the spike in defaults during the second quarter. 

But he added that the “extraordinary amount” of monetary and fiscal stimulus which helped lessen Covid’s impact has, in turn, reduced the supply of traditional distressed debt. 

“Even so, certain industries and sectors are still undergoing incredible distress, such as energy, retail, transportation, lodging, etc,” Schultze explained via email. “With that, I certainly expect more interest in 2021 but the focus will likely be more on late stage distressed investing based on where we are in the cycle.”