Darien, CT – September 23, 2015 – The Federal Reserve’s reluctance to raise interest rates last week underscored the fragile state of the U.S. economy and displayed an uncharacteristic concern for overseas economic and financial developments, according to new commentary from John Howe, CEO of direct lending specialist Old Hill Partners, Inc.
The manager’s main strategy, which invests in a portfolio of carefully constructed asset-backed transactions.
While the Fed would clearly like nothing more than to begin the normalization of monetary policy that has transfixed financial markets for more than a year, the decision partly alleviated concerns that the FOMC would move based on political expediency instead of economic necessity.
When combined with FOMC chair Janet Yellen’s ultra-dovish statement, the decision added some heft to Old Hill’s long-standing opinion that normalization will not begin until next year.
“The Fed’s decision reinforces our long-held view that the first rate hike comes in 2016, if at all,” said Old Hill CEO John Howe. “If conditions overseas deteriorate further, we would not be surprised to see the Fed reinstate stimulative measures, such as renewed QE, in a bid to fend off the effects of a world slipping closer to recession by the day.”
In the background, Howe observes that the Fed’s unwillingness to hike a relatively inconsequential twenty-five basis points, after months of prepping the markets for a hike, illustrates the seriousness of the global economic situation. Policy will remain extremely accommodative well after the first hike, he contends.
For companies like Old Hill, this means a continuation of the favorable environment enjoyed by direct lenders for much of the past several years. “Yields are likely to remain at rock-bottom levels for the foreseeable future,” continued John Howe. “Accordingly, the opportunity for prudent private lenders to execute transactions that generate stable, transparent and attractive risk-adjusted income will remain large.”
For investors such as high-net worth individuals, family offices and pension funds, for whom preservation of capital and the regular distribution of income are dual mandates, the private lending sector provides a valid alternative to an anemic post-crisis return environment.
About Old Hill Partners
Darien, CT-based Old Hill Partners, Inc. is an SEC-registered investment adviser with significant experience in asset-backed lending and alternative investment management. The firm offers customized lending products and services to middle market clients seeking creative funding structures for growth initiatives. The firm was founded by John C. Howe in 1996.
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Old Hill Partners