Understanding Risk
Understanding risk is a pillar to having billions of flows per year in credit. Understanding risk includes modeling cashflows, appraising collateral, forecasting performance, predicting behaviors of the servicers and monitoring government policy.
It’s this ability to research, model and measure that has given UCM the confidence to make buys as principal. Understanding risk and buying as principal go hand in hand.
UCM is an expert at measuring things. One of the things that connects UCM with our trading counterparties is that we have a history of looking at things from many angles. Our commitment to observing data and building forecasting tools is key to enhancing the work already being done by our trading partners.
Since UCM buys first loss tranches, we spend countless hours understanding and refining assumptions.
We believe that flows and sentiment can be more powerful than the fundamentals. We make an effort to anticipate changes in flows and sentiment and advise our counterparties of these views.
Providing Liquidity
UCM gives liquidity to a wide range of counterparties that sell subordinate, mezzanine or distressed senior bonds in structured finance. When asked, UCM stands to attention quickly and takes pride in providing bid levels.
UCM gives risk assessments, evaluations, market comps and ultimately liquidity to customers and dealers that need to sell. Customer service wins flows.
We are drawn to areas where there is a lack of liquidity caused by bad structuring, poor collateral performance, no cashflow modeling, downgrades, rapidly collapsing prices, forced selling or margin calls.
Finding Opportunity
There is strong opportunity in out of favor and complex areas that need liquidity.
UCM favors investments where supply flows and negative sentiment have pushed trading levels below fundamental value. We find this year after year. We are adaptable and will switch sectors to harvest opportunities that have this condition.
In 2020, mall, hotel and office loan delinquencies increased credit risk in CMBS conduit and SASB deals. The selling pressures, fearful sentiment and difficulty to predict performance have greatly reduced liquidity and created opportunity.
In prior periods, UCM harvested markets such as distressed credit cards, aircraft ABS and subprime mez that many deemed to be uninvestable, but now in hindsight have proven to be lucrative winners for those invested.
We are honored that over the years, some of the best performing mutual funds and hedge funds have considered UCM to be their top counterparty. Our measurement of risk and attractive ideas have produced results that have helped them to outperform their peers.
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