Q&A with Ksusha McCormick, Seaport Global Asset Management
Seaport V2 is a private equity-style fund investing alongside a sophisticated family office in an opportunistic, niche, capacity-constrained strategy. The fund has a $250mm hard cap and invests in small, overlooked stressed and distressed deals sourced primarily from highly motivated and non-economic sellers. The portfolio manager and CEO, Stephen C. Smith, has followed this strategy continuously in his family office for 17 years, outperforming the major indices by a significant margin.
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Why are distressed markets a good source of alpha?
Distressed markets are inherently inefficient. Accurate company information can be difficult to obtain, market participants have unequal degrees of control, and transaction costs can be high. Moreover, during periods of stress and distress, many types of investors become natural, forced sellers, liquidating debt or equity positions for non-economic reasons. These dynamics can create significant opportunities for a nimble value investor. Finally, there is a self-liquidating aspect to many distressed investments, as refinancings and restructurings naturally create exit opportunities.
Is this the right time for allocating to distressed strategies?
Our strategy is not dependent on market timing. Smaller companies, which are our focus, tend to experience stress and distress for idiosyncratic reasons, and the macro credit cycle is less relevant for them. Additionally, Seaport focuses on buying from non-economic sellers, and these frequently emerge late in the bankruptcy cycle. Examples include tax loss sellers or mega distressed funds experiencing investor fatigue and choosing to liquidate small positions. Many of our recent winners were assets purchased as late as 10 years AFTER a company’s original bankruptcy petition. As reflected by our track record, we have found many profitable investments even in the benign credit environment of the past 5 years.
What are the three pillars of your risk management process?
(1) We do not use leverage, (2) we focus on buying at deep discount, often for pennies on the dollar, and (3) unlike the majority of distressed funds, we do NOT take concentrated bets, instead building a portfolio of a large number of small, highly differentiated positions.
Ksusha McCormick, Seaport Global Asset Management
Ksusha McCormick has over 15 years of experience across a variety of trading, portfolio management, and investment advisory roles. She is one of the founding members of Seaport Global Asset Management. Prior to joining Seaport in 2017, Ksusha spent six years at Goldman Sachs, where she managed the investment portfolios of ultra-high net worth families and nonprofit foundations. Prior to Goldman, she spent two years as a portfolio manager at JWM Partners, a quant hedge fund founded by John Meriwether and other partners of Long Term Capital Management. Prior to JWM, she spent five years trading currency and interest rate derivatives at Morgan Stanley. Ksusha earned a BA from Columbia and an MBA from Wharton.