Canyon Hires Wall Street Traders as Banks Exit Market Making

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Canyon Partners co-Chief Executive Officer Josh Friedman says his credit investment firm has added traders from Wall Street as banks exit market making.

“Wall Street has lots of traders who are available because they’re not allowed to take positions,” Friedman said in a Bloomberg Television interview with Stephanie Ruhle Monday at the Milken Institute Global Conference in Beverly Hills, California. “If we’re interested in buying a security, we want to make sure we have very high talent level on the trading desk to be able to go out and source those securities at cheap prices.”

Friedman co-founded Canyon in 1990 with Mitchell Julis, with whom he shares the role of CEO, after the two worked at Drexel Burnham Lambert Inc. They’ve expanded the Los Angeles firm to oversee about $23 billion including leveraged loans, high-yield debt and mortgage bonds. Canyon is among investment firms seeking to take advantage of a forced retreat by banks from trading because of increased capital requirements and the Dodd-Frank Act. While that situation may make markets more volatile when prices drop, according to Friedman, it’s an opportunity.

“It’s hard to move large blocks of debt and we’ll find that the people who actually buy it are not intermediaries, but they’ll be end consumers who are not leveraged,” he said. “It means there will be other types of opportunities to make money.”

A “handful or maybe two handfuls” of other credit firms are taking similar action, said Friedman.

Oil Disruption

Friedman said his firm is currently cautious on markets and isn’t ready to jump into bonds tied to energy companies. While some investors thought the oil price plunge last year would create distressed opportunities, the disruption wasn’t particularly interesting, he said.

Zach Schreiber, whose hedge fund PointState Capital made a $1 billion profit last year betting that oil prices would fall, said today the rout is over.

Oil companies must “get into trouble” before investors can take advantage, and companies have protected themselves by hedging their oil and gas production, Friedman said.

“The opportunity may not be to buy existing securities,” Friedman said. “It may be to make very senior loans and replace the banks.”

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