What we’re reading (8/12)
“Is Private Credit A Bubble, Or Just A Little Frothy?” (Institutional Investor). “Leverage for the typical direct lending structure is higher than what you often find for high-yield bonds. Many direct lenders today are willing to lend to private equity–sponsored companies at five or six times EBITDA. According to Cambridge data, a full one-third of buyout debt transactions are done at north of six times EBITDA. On the other hand, BB bonds have an average leverage closer to 3.5 times EBITDA. So it is possible that the companies that direct lenders finance could run into financial difficulty sooner than the high-yield–funded ones; leverage ratios are highly correlated with subsequent default rates.”
“Buy Now, Pay Later Sounds Too Good To Be True Because It Is” (Vox). “The thing about buy now, pay later is that the later part always comes. Sometimes, the pay ends up being more than you think you’re signing up for, and often for stuff you shouldn’t have bought in the first place.”
“Running A Mutual Fund: Performance And Trading Behavior Of Runner Managers” (Arash Dayani and Sima Jannati, Journal of Empirical Finance). “This paper examines the relationship between the representation of marathon runners in a fund management team and its future performance. We find that funds with a larger proportion of runner managers have a higher level of risk-adjusted excess returns. We also find that these funds have a lower level of the disposition bias, deviate more from their benchmark portfolios, hold fewer stocks in their portfolios, and hold their stocks for a longer duration. Also, they tend to hold more stocks that are about to experience desirable earnings outcomes. Overall, the results suggest that personality traits that affects achievement in other dimensions of life may translate into fund management success.”
“U.S. Housing Affordability In June Was the Worst Since 1989” (Wall Street Journal). “The National Association of Realtors’ housing-affordability index, which factors in family incomes, mortgage rates and the sales price for existing single-family homes, fell to 98.5 in June, the association said Friday. That marked the lowest level since June 1989, when the index stood at 98.3.”
“Airline Seats Have Been Getting Smaller For Years. Is The Shrinking Coming To An End?” (Los Angeles Times). “Over the last 15 years or so, airlines have found a new way to drive up revenue: squeezing more seats into each plane. The result has been frustration and pushback from passengers who now endure narrower airline seats with less legroom. But relief may be in sight: After years of delays, federal regulators have begun taking public comments on a proposal to impose minimum standards on airline seat width and legroom to put a halt to the many years of seat shrinkage.”
