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Elm Ridge Management's Q1 2026 letter reflects on their prescient calls from five years ago that are finally materializing. The manager correctly predicted the rise in long-term interest rates from 1.5% to current 4%+ levels, arguing against consensus that rates would remain permanently low. They maintain a bearish stance on private credit, where fund assets quadrupled over ten years to capture 30% of the leveraged loan market, predicting a reckoning as liquidity issues emerge and returns normalize. The manager advocates for a rotation from asset-light compounders to Heavy Assets with Low Obsolescence (HALO), believing years of crowding in growth stocks will reverse as private capital shifts focus to tangible assets. While acknowledging their predictions are beginning to play out, they emphasize they have a long way to go before claiming victory. The letter demonstrates conviction in contrarian positioning against popular market narratives, with particular focus on financial sector vulnerabilities and value investment opportunities emerging from previous excesses.
Manager's core thesis centers on the normalization of financial markets after years of distortions from zero interest rate policy, predicting the end of the private credit boom and a rotation from asset-light growth stocks to asset-heavy value investments.
Manager believes they are getting closer to vindication of their long-held views but acknowledges they have a long way to go before claiming victory. Rates prediction has been correct so far but lower-rate hopes continue to lift growth over value. Private credit issues are emerging but not yet at crisis levels. HALO trade has started working but needs multiples of recent performance to fully vindicate the thesis.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Mar 31 2026 | 2026 Q1 | - | Alternatives, Asset Heavy, insurance, Macro, private credit, rates, value | - | Elm Ridge validates their contrarian calls on rising rates and private credit risks while advocating for asset-heavy value investments over growth compounders. Manager sees vindication beginning but acknowledges long road ahead as rate normalization pressures alternatives and HALO trade gains momentum against previously favored asset-light strategies. |
| Jan 24 2023 | 2022 Q4 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
RatesManager correctly predicted rise in long rates from 1.5% plateau in mid-2021 to current 4%+ levels on 10-year Treasury. Argued against consensus view that rates would stay sub-2% indefinitely, believing continued shortages of productive capital and labor would sustain inflation and that fixed-income investors would eventually demand compensation. |
Interest Rates Treasury Inflation Fixed Income Monetary Policy |
Private CreditManager has been bearish on private credit sector, predicting a reckoning due to success breeding excess. Private credit fund assets quadrupled in past ten years to 30% of leveraged loan market. Expects returns to normalize and investors to pay for past excesses as liquidity issues emerge. |
Private Credit Alternative Investments Leveraged Loans Credit Stress Liquidity | |
ValueManager advocates for shift from asset-light compounders to Heavy Assets with Low Obsolescence (HALO) trade. Believes excessive crowding in asset-light businesses will give way to stampede toward old-fashioned asset-heavy investments as private capital firms now focus on tangible assets. |
Value Investing Asset Heavy Tangible Assets Compounders Investment Style |
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