Delivering Alpha 2012

Going Long Illiquidity: Blue Mountain's Feldstein

Andrew Feldstein

The widespread appetite for liquidity has pushed down yields on the most liquid credit instruments and created value opportunities in less liquid bonds and bank loans, Andrew Feldstein told the CNBC and Institutional InvestorDelivering Alpha conference.

“We’re enthusiastic about less liquid credit, where you can earn between 11 and 12 percent,” said Feldstein, CEO and chief investment officer of Blue Mountain Capital Management.

The market has developed an “obsession with liquidity,” Feldstein said. He attributed the obsession to regulatory pressure and “fresh memories of the financial crisis.”

Mutual funds, which have high requirements for liquidity, now dominate the credit market, Feldstein said.

Long-term savers like pension funds, insurance companies and households hold assets with significantly shorter maturities than their liabilities. These investors, Feldstein said, are not taking advantage of “their natural time horizons.”

Feldstein said the opportunity could go away, once investors recover from their obsession with liquidity and start buying assets better matched to their liability timelines.