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Jeffrey Gundlach warns liquidity could mean more borrowing by leveraged fund
Jeffrey Gundlach commented on a leveraged fund's recent assertion regarding its ability to meet 5 percent redemptions each quarter for the next year without selling any portfolio assets.
Gundlach questioned whether the fund's claim of 'liquidity' was instead a reference to 'borrowing capacity,' highlighting the possibility that rather than holding sufficient cash or near-cash assets, the fund might rely on additional leverage to fulfill its redemption obligations. He emphasized that if this is the case, the fund's approach could increase overall risk. Gundlach's view brings attention to how some funds may use leverage strategies when addressing liquidity needs.
Gundlach has previously cautioned investors about credit quality, advising against buying general obligation municipal bonds in California, Illinois and New York in an earlier note here. He also observed that JP Morgan is preparing to require more collateral on private credit loans as asset values decline here. His recent remarks add to a series of warnings on fund risks and leverage.
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