Peter Martin
“Everyone has a great story about how they found a loan but spend less time telling you how they are monitoring it.” Peter Martin, Medical Defence Union
Atkin: It is important to recognise that there is no such thing as a good or bad asset; there is only a good or a bad price. Look at a deal in its entirety and ask if you are being sufficiently compensated for the com- plexity and illiquidity that you are taking on. Are you getting security over the assets? Can you negotiate the covenant package? Accidents happen so you need to ensure that you are protected by the spread.
PI: Is there a lot of competition for deals? Atkin: Private debt has become fashionable. A colleague of mine was told recently that there were eight managers in Japan that week promoting European mid-market lending funds. That gives you an idea of the degree to which this space is becoming crowded. Kwatra: When an insurer shapes a deal they are thinking, is the spread return wide enough for the asset to withstand a one notch downgrade. Our capital models get a lot of scrutiny from the regulator about our workout ability and recovery rate assumptions to the extent that we have separate teams responsible for overseeing our asset managers to ensure that they can demonstrate that workout expertise. That is why in insurance land it can take one to two years to get approval to invest in a new asset and prove it’s similar to something you already own and that you understand the risks. Martin: The noises I have heard about US and European loans is that, in some cases, there are add- backs, which is where companies massage the numbers to hide leverage. You need to make sure your
10 October 2019 portfolio institutional roundtable: Private debt
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