Anand Kwatra
“You cannot pile all your assets into private debt because you could lose the opportunity to exploit these market dislocations.” Anand Kwatra, Phoenix Group
Martin: Fundamentally, if you are lending money it is the underwriting and sustainability of the entity that you are lending to that’s important. If you get the underwriting right, and the borrower can sustain its payments and pay you back then you should be insulated from those things. Hamilton: When things go bad, and they can given that most strategies are sub-investment grade, you need a manager with the experience to manage it through the worst and try to maximise returns for investors. We are seeing new entrants in the direct lending space that do not necessarily have that experience. Julien Halfon: The crucial first step is origination. Corporate bond yield rates have compressed so much that you are probably better off in senior unlisted illiquid assets, which when well originated can generate between 200 to 300 basis points above gilts. That will allow you to get a positive real yield, but you also need somebody behind it that will recover the cash if there is a default. Martin: Loan managers are great at getting the deal, but if they are lending for five years they need to ask if that entity will exist in five years’ time. One example is the Yellow Pages, which went bad because it did not cope with the changes that the web brought. Everyone has a great story about how they found a loan but spend less time telling you how they are monitoring it. It’s always about the new deal, but the less sexy aspects are more important, such as money laundering, refinancing or when you get the money back.
8 October 2019 portfolio institutional roundtable: Private debt
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