Commentary

Private Credit in an Age of Scarcity (Third of a Series)

In a world where cash is either being withdrawn systemically through quantitative tightening or selectively by investor caution, capital formation is being challenged. Public capital utilization is governed by fast cash, so when money flows out of retail funds at the pace it has, it’s a headwind to deal activity. Private capital has long-term, locked-up…

Private Credit in an Age of Scarcity (Second of a Series)

Supply chain issues aren’t limited to bikes and baby formula. As the Fed withdraws liquidity from the banking system and investor cash exits public credit, it’s more challenging to deliver capital to traditional buyouts and M&A. In pivoting from a world of abundance to one of scarcity, credit markets are struggling to adjust. Direct lenders…

Private Credit in an Age of Scarcity (First of a Series)

Our keynote address at this week’s SuperReturn US Private Credit conference allowed us to share a reconsideration of the impact of rate hikes and quantitative tightening on capital markets and private credit. This special series will further develop that thesis. For over a decade, including through Covid, the tide of capital has flowed mostly in…

A League of Its Own

We all have a few sad childhood memories. One of our lowest moments was coming home for Thanksgiving freshman year to discover our younger brother had traded away our baseball card collection. We had gifted him the shoebox full of Topps stars that summer, assuming he would prize it highly. Turns out he prized his…

The Great Unwind (Final of a Series)

“The easy money has been made; the harder money is left.” We noted this recently from an experienced asset manager reflecting on the current investing market. It’s fairly typical of a public trading approach emerging from a period of low prices. Eventually the worry discount goes away as fear fades. Finding the next bargain then…

The Great Unwind (Third of a Series)

Our characterization of the current economic picture as a “precession” took into account the second quarter’s negative GDP data. But last week’s “blowout” labor report for July – 528,000 jobs added – combined with unemployment edging down to 3.5%, hardly depict the prelude to a recession. The number of jobs now stands where it did…

The Great Unwind (Second of a Series)

News reached us last week of the demise of the Choco Taco. Or not. Cousin to the Klondike Bar, this chocolate-nut-waffle-taco-vanilla-fudge-ice-cream novelty seemed to be yet another victim of supply-chain issues when its manufacturer announced it was being discontinued. Choco-Taco’s creator chalked it up to the times. “I believe if there had never been Covid…

The Great Unwind (First of a Series)

One of the enduring mysteries of human behavior is our perpetual discomfort with the present. Why can’t today be more like yesterday? Yet when tomorrow brings the hoped-for change, we are invariably chagrined. Oscar Wilde captured this tendency when he wrote, “When the gods want to punish you, they answer your prayers.” Lenders like to…

Relative Value in the Loan Market (Part Two of Two)

Last week’s June CPI report showed inflation running at 9.1%, higher than May’s number, dashing hopes that consumer prices had peaked. Data drivers were also broad-based, including energy, food and housing, challenging the Fed’s rate hike pace. Would 75 bps be enough, or will the Fed kick it up to a previously unimagined 1% later…

Relative Value in the Loan Market (Part One of Two)

In our series on portfolio construction [link] we looked at how liquid and illiquid loan managers assemble quality all-weather assets. Because of the contrasting characteristics and behaviors of BSL and middle market, PMs work differently to extract and maintain value. In recent months, thanks to market volatility caused by higher interest rates, toppy inflation, and…