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The Marriner S Eccles building of the United States Federal Reserve in Washington, DC, on Jul. 24, 2017.
Nancy Davis, the managing partner and chief investment officer of Quadratic Capital Management, is recommending bets against two companies that are likely to be sensitive to the Federal Reserve cutting back on stimulative policies.
“The Fed reducing the balance sheet is a major game changer,” Davis said in a presentation at the Sohn Conference in San Francisco. “The first place that’s going to feel that is the levered credit market.”
“I think there are some specific BDCs [business development companies] that have gotten very extended,” Davis said.
Two of those companies, TICC Capital and Prospect Capital Corporation, “are attractive shorts,” she said.
The Federal Reserve is set to begin reversing in October its massive asset purchase program begun in the wake of the financial crisis.
TICC’s risk from its collateralized loan obligation equity portfolio has increased, while Prospect Capital has a lot of exposure to multi-family housing loans and online consumer lending, Davis said.
Quadratic Capital is based in Greenwich, Connecticut, and is majority owned by women. The advisory firm primarily uses derivatives to invest in its global macro strategies.
Wednesday’s event is the West Coast version of the prominent investment conferences which began in New York and are best known for hedge fund managers making market-moving presentations. The Sohn conferences benefit pediatric cancer and other causes for underserved youth. The conference is presented in partnership with CNBC.