John 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” John Atkin, M&G Investments
Atkin: The traps out there are significant and manager selection in private assets is several magnitudes more important than it is in public markets. Firstly, the ratings that are used are set by the managers themselves, they can rate those assets however they wish. Similarly, the managers are building the covenant package with the borrower, they are looking at the security package, they are negotiating the terms; there’s a huge amount of trust you are giving them. One of the things we are often cautious of is single sector funds. Fashion can move quickly, so you could end up telling your clients to stop investing that area, if they are not being rewarded as they had hoped. Martin: If there is not enough juice left, stop investing. That also applies to multi-strategy and multi- sector funds.
If you cannot invest sensibly without going down the rating, going from senior to junior or needing some financial leverage to up the return you need to trust your manager to say: “I was going to deploy the money at this spread, I can’t invest it, what do you want me to do?” Make sure there is a mechanism in place so they are not just gathering assets and you suddenly find that where you thought you were getting Libor+ 300 you get Libor+ 150 and you are stuck. Atkin: The incentives come terribly into focus here. If you have a manager who is being incentivised to spend money no matter what, and into the highest return possible when they are in control of the risk,
18 October 2019 portfolio institutional roundtable: Private debt
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