The Value Proposition Behind Short Duration Investments
Cadence is committed to building an alternative investment infrastructure for all investors. As we witnessed the markets evolve and various alternative investment platforms go live, we realized there was a mismatch between what was being offered and what investors really wanted. With volatility in the markets driving demand for liquidity, flexibility and optionality are highly valued. We touched on this previously, as part of our originator selection process that enables us to provide built-in liquidity with our short duration products. However, the underlying reasons behind this are more relevant now considering two major indicators:
1. Market Volatility – Public equity and debt markets continue to remain extremely sensitive to broader headlines of geopolitical and macroeconomic events. With the proliferation of algorithmic trading, market shifts are amplified. Prices tend to swing wildly on event-driven circumstances, whether it’s a surprising earnings release, employment report or foreign conflict. This volatility is especially troublesome for fixed income as depressed yields pose obvious challenges to risk-adjusted returns.
2. Low-Rate Environment – As central banks around the world grapple with how to best keep prices stable while maintaining full employment, the low rate environment continues to persist. Government yields remain depressed around the world, causing investors to invest either further out the curve or further down the risk spectrum to seek meaningful returns. On the equity side, this dynamic has led to inflated asset prices around the world, posing correction risks with little to hedge against since traditional hedges such as fixed income are becoming increasingly correlated.
We listened to our investors’ concerns, and we delivered. To combat all these broader market headwinds, we’ve structured a variety of unique, short duration products that benefit investors like you.
Ultra-Short-Term and Short-Term Bullet Payment Investments
These are our most popular offerings to date. These investments accrue interest daily and are available for redemption upon maturity. They are issued in 1-month, 3-months, 6-months, or 9-months series depending on the originator and the duration of their underlying assets. Upon maturity, most of these investments are designed to continuously roll over and extend for additional periods. This provides investors with the choice to re-invest in the next identical offering or cash out if they need liquidity. No other platform offers these features today, yet these features are extremely valuable for any investor looking to capture uncorrelated alpha while maintaining a liquid position.
Short-Term Amortizing Payment Investments
This is our newest and most exciting offering. We’ve received overwhelming interest from investors looking for investments that provide fixed income distributions over the life of an offering, rather than in one lump sum payment upon maturity. With our amortizing structure, this becomes possible as investors commit principal and receive interest and principal repayments in equal installments of over the life of the offering. The value of a short-term investment (i.e. < 1 year) is now enhanced by the additional benefit of de-risking much sooner, while receiving a steady stream of cash flow according to a set schedule. We are looking forward to making this type of structure available in several of our upcoming investment opportunities, including one in March.
At Cadence, we are partnering with originators who have high-quality assets that can be structured into attractive investment opportunities. The products we have crafted above showcase our unwavering commitment to provide investors with robust and nimble financial tools necessary for navigating a volatile, low-rate environment.