HighVista Strategies closes its second opportunistic fund at $450m

Vehicle beats its target, and a new commentary by Oaktree may throw some unintended light on its strategy.

HighVista Strategies has announced the final close of its HighVista Opportunistic Private Credit Fund II on $450 million, exceeding its target by $50 million. There was no hard-cap, the firm said.

Boston-based HighVista manages more than $4 billion of capital for a range of clients, including family offices, endowments and foundations, sovereign wealth funds and pensions.

In a statement, the firm noted that market stability is eroding and liquidity has dried up in credit markets. That is why, the statement says, HighVista has adopted what it calls the opportunistic credit strategy, which involves investing in pockets of dislocation and in uncorrelated areas that can be challenging to underwrite.

The precursor fund, HighVista Opportunistic Private Credit Fund, followed the same strategy. It closed on $309 million in December 2019, above its target of $250 million. Fund I and Fund II have each taken a multi-strategy approach. Fund II will invest in real-estate backed credits, corporate credits and uncorrelated credit opportunities.

Upon the closing of Fund II, the firm issued a statement quoting Ralph Schorr, deputy chief investment officer, who predicted that “the strong conviction our team brings to opportunistic credit investing, coupled with our team’s experience and pattern recognition”, would serve investors well.

In a recent market commentary, Oaktree Capital tracked the ups and downs of default rates by asset class in a way that may make the case for the value of an opportunistic strategy along these lines.

The graph shows the changes in default rates for five asset classes (US high-yield bonds, European high-yield bonds, US senior loans, European senior loans and global convertibles). In each class, the default rate rose markedly in the early months of the pandemic in early 2020. Each class then soon hit a plateau, then began descending from that plateau a year after the ascent. In each case, the default rates stayed at the new low levels.

But the lesson of 2022 so far, the graph suggests, is the end of this pattern of movement in tandem. The lines representing the default rates of different asset classes are dramatically diverging this year. This is a fragmented market, and in a market where inefficiency abounds, the right management can perhaps find its way through the inefficiencies to alpha or so Oaktree and HighVista would have their constituencies understand.