By: Joshua Finley

Special situations investing is a unique strategy in the financial world, focusing on investment opportunities arising from events or circumstances that create an undervaluation or mispricing of a company’s market value. These events can include mergers and acquisitions, financial distress, hostile takeovers, legal changes, or other specific corporate developments – usually of a negative or uncertain nature. While these events can lead to substantial investment  returns, the uncertainty around a company’s ability to perform or overcome these headwinds can make these investments a much riskier proposition for the untrained investor. Despite the complexity inherent to this investment approach, Juan Espinoza has built a career working with companies such as Oaktree Capital Management and Wellington Management Co with a special focus on value and special situations investing, both in equities and fixed income instruments.

The Draw of Alternative Investing

While many companies and investors are drawn to trending investments and historically strong performers like GOOG or MSFT, Espinoza has always been drawn to the dark horse of investing in special situations.

“I’ve always been drawn to value investing and unusual, special opportunities,” Espinoza shares. “It’s about finding worth where others overlook. This methodology is appealing to me because it’s all about going where the consensus view is to avoid.”

His tenure at Wellington Management was a critical phase, where he helped manage multi billion dollar funds and played a pivotal role in fundraising new fund mandates. The 2008 financial crisis marked a turning point in his career, igniting his interest in special situations, particularly those created by credit events and distress. “That period was challenging but also thrilling. It required a blend of creativity and rigor that I found immensely fulfilling,” Espinoza recalls.

A significant chapter of his career unfolded at Oaktree Capital Management, where he helped build and led investment research for a value and distressed-oriented investment team. Managing several billions in  assets, Espinoza and his team navigated through tumultuous market cycles investing on behalf of large institutional clients. “It was about building a culture of deep fundamental research and disciplined investing,” he says.

Espinoza’s approach is marked by experience, flexibility and a hands-on understanding of the US, Europe and a variety of international markets. He emphasizes the uniqueness of every situation, especially in emerging markets. “You can’t just transplant a skillset from the U.S. or Europe into these markets. Local regulations, business dynamics, and cultural nuances play a huge role,” he advises.

He outlines three key tips for success as a special situations investor:

Recognize the Uniqueness of Each Situation: Understanding that each investment context has its distinct set of challenges is crucial. This is especially true in international investing, where local laws, regulations and market dynamics vary significantly.

Build a Local Network of Experts: Success in special situations often hinges on understanding the specifics of the local landscape. “Having a network of local experts is invaluable. They provide insights into the unique challenges of a market, be it legal, business, or cultural,” Espinoza explains.

Understand the Impact of Time: The length of time it takes for a situation to get resolved can significantly affect the appeal of an investment. Especially in foreign countries, special situations can require several years to produce returns. “You have to value and approach every opportunity based on the time it could take to provide a profitable exit opportunity. An extended closing period can diminish the overall yield,” he says, emphasizing the importance of patience and thorough research.

For Espinoza, success is built as much on the investments you make as on those you don’t. “It’s better to spend a year researching and passing on an investment that ultimately did not measure up than to rush and deploying capital in a situation that fails to meet your filter or criteria” he asserts.

For more information on his investing career and tips for success, you can follow him on his website or on LinkedIn.