Additionally, the objectives vary by fund. Others elect to purchase mezzanine debt or common equity of distressed companies, taking on more risk in hopes of generating outsized returns. These funds invest across the capital structure, with a portion focusing solely on first and second lien debt with greater expected downside protection.

For instance, there are funds that focus on the small- to mid-cap universe (companies with roughly $100 million to $1 billion in enterprise value), while others target larger public entities (companies with $1 billion or more in enterprise value). These opportunistic credit vehicles range in size, style and focus. Hedge funds and special situations firms have been active in raising and deploying capital to purchase assets that have seen violent downward pricing pressure, such as collateralized loan obligations, high yield and convertible bonds, and public and private loans, as well as providing funding for struggling companies through bridge and debtor-in-possession financings. Armed with significant levels of dry powder (roughly $1 trillion) and waiting for such a dislocation, distressed and opportunistic credit investors have entered the market and are buying aggressively. This disruption has sent investors scrambling to raise cash by selling securities, resulting in depressed asset prices. The pain has been felt across industries, from the obvious impacts to the travel and leisure sectors as well as what are generally considered more defensive industries like health care, where quarantine directives have canceled elective surgeries and routine dental visits. As a result, a number of industries have struggled to conduct business as supply chains have been disrupted, consumer sentiment has changed dramatically and shelter-in-place mandates have shuttered many businesses. The impact of the coronavirus has been widespread, affecting countries across the world including China and the United States. For reference, the S&P 500 Index was down 20.0% and the Dow Jones Industrial Average was down 23.2% for the quarter ended March 31.

The past few weeks have been a time of unprecedented volatility in the debt and equity markets due to the uncertainty and impact of COVID-19.

Penn mutual assets