Private debt unlocks new investment opportunities

CAMRADATA has published a new whitepaper entitled ‘Challenges and Opportunities of Private Debt Investing’, which examines the opportunities, challenges and innovation of private debt strategies, sharing insight from investment managers who attended a recent roundtable on private debt.

The roundtable participants included, Amundi Asset Management, Cairn Capital, Prestige Funds, Cambridge Associates, River and Mercantile Solutions and Santander Asset Management.

Sean Thompson, Managing Director, CAMRADATA said, “Post the financial crisis, the past ten years have been miraculous for the private debt market, matching investor needs seemingly effortlessly. The lure of these private debt strategies appears to be unlocking new investment opportunities that were previously unavailable to boost returns.

“Private debt covers an array of options for investors and the high yield opportunities are attractive and offer acute competition to the more traditional fixed income asset classes. Moreover, due to the wide-ranging nature of private debt, it also provides the investor with the much sought-after portfolio diversification. But there are challenges, primarily the transparency and reporting capabilities private debt can provide.

“Our whitepaper asks if there is enough reporting and granular information available regarding the investment process and looks at the opportunities available, the challenges, the innovation taking place in this asset class and where it can benefit asset owners going forward.”

Key takeaway points were:

  • Current market conditions are not elegant, but there are still good possibilities in Leverage Loans and direct lending
  • Credit selection is key and now is a time to proceed cautiously. Investors are advised to ask themselves ‘where is my risk attachment’.
  • Risk transfer is a way to play private credit without competing with the vast sums of capital pursuing direct lending strategies.
  • Glide paths and private markets need to be managed with a bit of additional thought to ensure portfolios do not become too undiversified in illiquid assets
  • Securing the best-in-class managers is essential with private debt strategies
  • Investors should be cautious of newer managers, and must ensure they are happy with Operational Due Diligence and who has control over the different areas of the business, and that proper governance is in place

Thompson adds, “One of the key areas discussed was the oversupply of private credit and whether now was a good time to be entering particular strategies. The panel looked at how some were using distressed debt funds to raise money to capitalise on opportunities that could potentially arise in private credit.”

“The panel also highlighted sector recessions and the likelihood of economic contraction ahead, and the impact this could have. The roundtable ended with a final point that the traditional 80/20 split between banks and institutional investors’ supply of credit will continue to alter in favour of institutional investors over time.”