Recent market activity characterised by the below themes, currently at play in the asset class :
1. Relative value
Where does value sit in alternative lending?
Since GFC, Private Debt markets have changed dramatically, in Europe in particular. In a zero to negative interest rate environment, significant influx of institutional interest and capital has transformed the general landscape, making it much more diverse through a burgeoning of strategies, raising the need for better understanding and analysing the various fields and new sub-niches constantly enriching the market.
In addition, continued investor interest has significantly increased market competition, putting pressure on deal flow, capital roll out (dry powder starting to accumulate), deal and structure terms, making it imperative to be able to carry out in-depth risk-return and relative value analysis across the board.
2. Manager Selection
Who are the talented managers?
Given the plethora of new managers entering the market, raising funds and rolling out new strategies in the space, it has become increasingly challenging to spot talent, discern through profiles and analyse performance, investment thesis and perspectives. Benefiting from a depth of knowledge and array of relationships is paramount in order to back the appropriate project and manager.
Furthermore, fund structural nuances between managers (e.g. subscription facility, outright leverage, catch-up clause) can significantly impact investors’ risk return within a same strategy. CCP covers more than 200 managers globally on more than 400 funds in 16 niche markets.
3. Asset Class perspectives
What are the asset class perspectives: consolidation, acquisitions, partnerships?
Considering the profusion of managers and the influx of money to the space, many private debt market participants currently have high expectations of acquisitions, consolidation, or partnerships in the field. In addition, this trend may be fuelled by the harsh reality of the high fixed cost nature of these credit businesses, potentially subject to significant pressure, should they fail to generate sufficient deal flow opportunities.
Appropriate market intelligence and timely contacts can make a world of difference in how to take advantage of trends shaping the market.
4. Performance issues
Alternative lending is an illiquid asset class and is sometimes used with additional leverage, whether or not in mark-to-market products. CCP helps investors understand if their portfolio has been designed to take an appropriate level of risk and the nature of potential losses in a credit cycle downturn.
Timing on fund or manager program exposure reduction can often be tricky with poorly timed decisions due to lack of knowledge on the asset class and can lead to opportunity loss or capital preservation damage.
CCP can be a particularly helpful partner in analysing performance issues across portfolios or manager programs. CCP can help tackle challenging situations that require a deep understanding of the underlying market, its liquidity and value as well as recovery potentials.