CNBC – Fire sales worth up to $43 billion could soon spark a flurry of opportunistic investment, according to a recent report from the Royal Bank of Scotland, as the ongoing squeeze in the commercialpaper market forces investment banks to liquidate holdings.
The urgency of the security sale could represent a great buying opportunity for cash-rich institutional investors, specifically hedge funds that operate in distressed debt, known as vulture funds, and Sovereign Wealth Funds.
“There are a lot of distressed hedge funds that are raising money … and they see ample trading opportunities in these markets,” Remko Van-Der-Erf, portfolio manager at Theodoor Gilissen Bankiers, told “Squawk Box Europe.”
“The investment banks have to sell down a lot of debt from their books in the up coming months,” said Van-Der-Erf, adding that the hundred of billions of dollars loaned in connection to a recent surge in mergers and acquisitions could be snapped up by distressed hedge funds.
“I would expect some of the larger investment banks to be buyers of these things, once they’ve liquidated some of their older positions they feel they have to get rid of,” David Buik, Partner at BGC Partners, told “Squawk Box Europe.”
But buyers of distressed debt should remain cautious of further value erosion and October or November might be better entry points, Van-Der-Eft added.
