Distressed Credit and Special Situations Opportunities
May 18, 2021
In this episode of Alternative Investments Spotlight, Elana Margulies-Snyderman, Senior Manager, Publications, EisnerAmper, speaks with Cindy Chen Delano, Partner at Invictus Global Management, an Austin-based alternative asset management firm that specializes in investing across distressed credit and related special situations opportunities. She shares her non-traditional background going into money management, her outlook on alternative investments with respect to distressed credit and special situations, her experience being a women money manager, what she is doing to encourage more women to go into investing, and how the firm is embracing D&I.
EMS: Cindy, tell us a little about your firm and how you got to where you are today.
CCD:I am Cindy Chen Delano, co-founder and partner at Invictus Global Management. We are a diverse woman-owned distressed credit and special situations private equity firm based in Austin, Texas. Our strategy focuses on investing in bankruptcy cases across three distinct pillars, credit, trade claims and litigation finance. I became an investor after recovering from private practice at Kirkland & Ellis, where I started off as a bankruptcy lawyer representing companies undergoing operational or financial distress. And then I pivoted to represent creditors in those situations. As an advisor, I gained tremendous insight into how restructurings worked both from a process and related stakeholder psychology standpoint. And that gave me a leg up to unlock value as if I were in a risk-taking seat.
As a result, I knew I needed to transition to a principal role under the old adage of if you want to do it right, you need to do it yourself. It took a few transitional roles, including a stint at the investment arm of insurance aid giant, AIG, where I advised on multi-billion dollar transactions involving esoteric assets before I landed my first risk taking role as a senior member of a credit team at white box advisors, where I met my now business partner. After working together for over three years, where we built out our unique approach of pairing value investing and legal activism and each investment, we decided to spin out and build a firm with our values from inception and to showcase how these values generate out-performance.
EMS: Cindy, given recent events in the last year plus, investors are now capitalizing on distressed opportunities. I wanted to ask you where you see the greatest opportunities.
CCD:This past year has really been something. We have experienced significant political change, arises in racial unrest and increased disparity. And in the markets, we've seen unprecedented equity market volatility, and all this against the backdrop of a global pandemic that continues to change the world around us. At Invictus, we remained focused on investing new pockets of distress that emerged across the corporate and municipal debt markets. In particular, we believe the lower end of the middle market will present some of the most attractive distress opportunities over the course of 2021 because of a few key factors.
First, bankruptcy filings for companies with over $100 million of liabilities have increased 58% in 2020. Second, the national bureau of economic research currently estimates that the bankruptcy filings will increase 140% in 2021, which we believe will feed our opportunity set and pipeline. Third, many highly leveraged companies that are on the precipice of a bankruptcy or restructuring prior to the pandemic have tipped over the edge during the spring and summer of 2020. We believe as this is one of the drivers of three consecutive years of increasing bankruptcy cases in the United States, that this will be one of the main drivers of an increased filings for the future. There is still a growing number of small and medium-sized companies that remain extremely vulnerable from the extended shutdown, loss of market share to more established online competitors and a slow and uneven economic rebound across the globe.
EMS: And Cindy, what about the greatest challenges you face both from an investing and business perspective?
CCD:Economic disparity among the haves and have nots is a key challenge across the board. The economic recovery is shaping up to be very uneven, with high income earners fairing better than the middle class and lower income families, and established companies in turn doing better than small businesses with brick and mortar footprints and or limited scale. We believe there are hundreds of businesses ranging from consumer entities to valuable brands, to technology startups with promising intellectual property that currently lack the liquidity to survive for another 12 months without additional significant government lifelines.
While this is difficult on many levels, these hard times generate increased opportunities for a firm like mine that is well versed with bankruptcies and restructurings. As a strategic capital provider experience in complex situations, we are able to be creative partners to these companies that need to restructure and reinvent themselves. Oftentimes these companies have litigation assets whose values can be unlocked with the right process. While there are many of these companies that need a partner like us to help them. What we find is that there are not many investors like us out there. In fact, we have yet to find another firm that competes on the full suite of our investment strategies. So we've been turning down some really great opportunities because of the supply demand and balance.
EMS: Cindy, being a woman money manager, you're such an inspiration. I would love for you to share your experience in the industry as a woman.
CCD:Elana, it is sometimes better to be lucky than good. I am very fortunate to be starting a woman-owned firm during these times. In recent years, there has been a growing recognition of potential diversity dividends in investing. That is whether there is a causal relationship and financial performance and diversity, it remains to be seen. But whether diversity is a dispositive factor, it is clear that it can be a contributing factor to performance when measured against impacts on accuracy of decision-making, objectivity, analytical thinking and innovativeness. While it is almost universally recognized that research across a multitude of fields and industries have identified the potential economic and social benefits of diversity, the asset management industry continues to struggle with the lack of diversity and they often cited 2019 Knight Foundation Study, a few key factors come to mind. Composition, firms with female or minority ownership makeup a low percentage of all firms in the asset management industry.
These diverse owned firms represent an even smaller fraction of the total number of funds and total AUM across all asset classes. Performance, diverse owned funds perform at a level comparable to that of their non diverse peers. And the third trends, representation of diverse owned firms have increased modesty in recent years among hedge funds, private equity and real estate, while AUM with diverse owned firms has fluctuated significantly year to year. The Knight Foundation Study takeaways are important here and begs the question of why isn't there comparable access to capital for diverse managers if performance is comparable? These findings and the growing recognition that diversity can drive real value potentially are tailwinds that are positive for a manager like me, who is raising a first time fund. It also means that I have a tremendous responsibility as a manager that has raised institutional capital to outperform so that the pipeline can be increased.
EMS: Cindy, what advice do you have for younger women in the industry to advance their careers?
CCD:That's a great question, Elana. I would say be brave and curious. Do not fear mistakes or failures. We named our firm Invictus after the William Ernest Henley poem that focuses on the human spirit and its ability to overcome adversity. The central theme of the poem is bravery and is served as a rallying cry for many, including the late John Lewis, who find themselves in trying situations and who have to dig deep and fight. There were so many instances during this journey where the little voice of doubt nagged me to quit because no one like me has ever done anything like this. I was born in a little rural village in Southern China without indoor plumbing, grew up under very humble means in New York City's Chinatown, was the first in my family to go to college, the only one to become a lawyer, and the only one in the investment management industry, much less a co-founder.
But I was always reminded that in those moments, no one remembers a quitter. I am also very lucky to have a fantastic cheerleader and my husband, who is a natural endurance athlete, who reminds me constantly that my professional journey is one of the hardest and longest races I will ever run, but it is one that I put myself in. So I will drag myself over the finish line, which also ties into the other tenant of the Invictus poem. Invictus says, "I am the master of my fate and captain of my soul." So the other advice is to find a best friend who will be in your corner no matter what kind of day you are having.
EMS: Cindy, being a woman-owned firm, you clearly incorporated D&I into the firm's culture from inception, but now D&I has never been more urgent. So I'd welcome the opportunity to hear how your firm champions this.
CCD:Great question. D&I is topic du jour, it is about merit ultimately. At Invictus, we are focused on achieving high performance and it is pure meritocracy that is shaped by the diversity of the leadership. My business partner and I are very different people, but we have the same core values of excellence, transparency, and accountability. We are a flat structure at the firm and at the investment level, so that everyone is a decision-maker and their views matter. We hold ourselves and our team members responsible as good stewards of capital for our partners who have put their faith in us. Mediocrity is not acceptable. So diversity is the antithesis of it because it ensures the optimal outcome. We incorporate diversity of viewpoint, expertise and experiences in our investment process by being a small and nimble team. And we leverage external experts in operations, industry expertise and sourcing. We are generalist internally and rely on a multitude of external experts. The outward looking perspective of our team and our investment process is deeply rooted in embracing diversity and inclusion as core principles for excellence.
EMS: Cindy, we've covered a lot of ground today. So I wanted to see what your future plans are for Invictus.
CCD:Well, Elana, Invictus was founded on a shared vision of building a first-class investment firm around a scalable, teachable, repeatable investment strategy. So therefore in the long run, I hope that our success as a firm and team will generate greater interest in investing as a creative and intellectually rigorous profession for a broader group of people. In the short and medium term, we strive daily to deliver good performance for our trusted partners who put us in business in the first place. There are very few first date investors out there, and hopefully with our success, there could also be a greater pipeline of true day one capital for diverse managers like us.
EMS: Cindy, thanks so much for sharing your perspective with our listeners.
CCD:Thanks for having me, Elana.
EMS: And thank you for listening to the EisnerAmper Podcast Series. Visit eisneramper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast, when we get down to business.
Transcribed by Rev.com