Watershed’s investment objective is to prioritize preservation of capital while generating superior risk adjusted returns over business and economic cycles. The firm seeks investments with either contractual cash flows or an identified catalyst, and uses fundamental value and cash flow analysis to project returns under a range of potential scenarios. The firm’s reputation has been built around its willingness to embrace complexity and its reliance on extensive business, financial and legal expertise.
Many of Watershed’s investments are expected to be in companies and assets that are affected by change, such as a cyclical downturn, a secular business shift, a liquidity event, a business misstep, major litigation, legislative or regulatory change, or a bankruptcy or restructuring.
Watershed invests primarily in marketable debt and equity securities including bank debt, high yield bonds, convertible bonds, credit default swaps, securitized assets, preferred stock, trade claims, and event and value equities. Its mandate is flexible enough to allow it to invest across geographies and up and down a company’s capital structure.
The firm prefers to invest in jurisdictions in which creditor rights are respected, and conducts rigorous industry-focused due diligence to manage position risk. To hedge against market risk, Watershed uses directional shorts, portfolio hedges and catastrophe protection. Watershed further manages portfolio risk by maintaining adequate diversification, hedging currency risk, monitoring liquidity and managing counterparty exposure.