Market Conditions
As a result of the credit crisis and the recent global economic
decline, financial institutions internationally have been forced to
divest non-performing mortgage paper and distressed real estate at
discounts previously unavailable, in order to generate the
liquidity required to remain afloat. Due to current circumstances,
financial institutions have had to sell assets at prices well below
intrinsic and replacement value. A US $30 trillion transfer of
wealth is anticipated over the course of the next five to 10 years,
from the pockets of those required to dispose of assets on
discounted basis to those with the financial wherewithal to
purchase these assets - in a manner similar to the 1929 Great
Depression and the 1989 Savings & Loan Crisis.
Uncorrelated Absolute Returns
Conventional investments and investment managers are evaluated
on relative performance. Their performance is measured against a
standard benchmark return, ranging from the S&P 500 and
treasuries to the FTSE 50. In market declines, these investment
managers are rewarded and/or recognized for outperforming these
benchmarks, despite the fact that the investment generated a loss.
Distressed asset investments are designed to generate an absolute
return, independent of outside benchmarks. In fact, one of the only
manners with which distressed assets are correlated with indices
and market conditions is the relation of the availability of
distressed inventory to the economic health of the real estate
market and banking system. Distressed assets provide institutions
and investors the ability to diversify and therefore mitigate
risk.