Key Takeaways
- • Investcorp released its white paper "Opportunities in Credit" on June 21, 2018, examining six credit-related strategies it says may deliver value amid rising U.S. interest rates and narrowing credit spreads.
- • The paper covers U.S. residential mortgages, callable legacy RMBS, distressed middle market credit, Italian non-performing loans, senior secured loans, and collateralized loan obligations.
- • Investcorp Credit Management (ICM) has over $11 billion in AUM following its 2017 acquisition of 3i's debt business, investing mainly in senior secured corporate debt in Western Europe and the U.S.
- • Investcorp's Alternative Investment Solutions (AIS) group, launched in 1996, has approximately $4.0 billion in total AUM.
- • Co-authors John Fraser, Jonathan Feeney, and Gregory Berman argue that U.S. mortgage supply-demand mismatches create openings for alternative lenders.
Summary
Investcorp, a Bahrain-headquartered alternative investment manager, released "Opportunities in Credit" on June 21, 2018. The white paper was co-authored by John Fraser, Head of Credit Management U.S.; Jonathan Feeney, Co-Head of Research, Alternative Investment Solutions; and Gregory Berman, Co-Head of Research, Alternative Investment Solutions. It examines six credit-related strategies that Investcorp believes may help deliver value in the current market environment.
According to the firm, the strategies may offer returns that lack significant market dependency. Fraser said that despite pressure from rising U.S. interest rates and narrowing credit spreads, certain credit strategies may present significant opportunities, particularly senior secured loans and collateralized loan obligations, which he described as potential protection against rising rates' impact on traditional fixed income assets. Feeney said the firm is identifying sophisticated hedge funds positioned to benefit from industry imbalances, noting that in the mid-cap segment hedge funds are finding alpha by analyzing complex corporate events affecting companies' capital structures.
Berman addressed the U.S. residential mortgage market, where he said demand from underserved borrowers is significant. He attributed the gap to regulatory changes and shifting investor appetite in the decade since the Global Financial Crisis, combined with a new generation seeking to buy homes. In his view, the resulting mismatch between supply and demand creates opportunities for alternative non-traditional lenders.
Investcorp Credit Management (ICM) was introduced the prior year following the acquisition of 3i's debt business in March 2017. ICM now has over $11 billion in assets under management and invests primarily in senior secured corporate debt issued by mid and large-cap companies in Western Europe and the U.S. Separately, the Alternative Investment Solutions (AIS) group, which launched in 1996, has approximately $4.0 billion in total AUM across customized multi-manager solutions, hedge fund partnerships, alternative risk premia, and special opportunities portfolios.
The full white paper is available for download from Investcorp's website.
According to the firm, the strategies may offer returns that lack significant market dependency. Fraser said that despite pressure from rising U.S. interest rates and narrowing credit spreads, certain credit strategies may present significant opportunities, particularly senior secured loans and collateralized loan obligations, which he described as potential protection against rising rates' impact on traditional fixed income assets. Feeney said the firm is identifying sophisticated hedge funds positioned to benefit from industry imbalances, noting that in the mid-cap segment hedge funds are finding alpha by analyzing complex corporate events affecting companies' capital structures.
Berman addressed the U.S. residential mortgage market, where he said demand from underserved borrowers is significant. He attributed the gap to regulatory changes and shifting investor appetite in the decade since the Global Financial Crisis, combined with a new generation seeking to buy homes. In his view, the resulting mismatch between supply and demand creates opportunities for alternative non-traditional lenders.
Investcorp Credit Management (ICM) was introduced the prior year following the acquisition of 3i's debt business in March 2017. ICM now has over $11 billion in assets under management and invests primarily in senior secured corporate debt issued by mid and large-cap companies in Western Europe and the U.S. Separately, the Alternative Investment Solutions (AIS) group, which launched in 1996, has approximately $4.0 billion in total AUM across customized multi-manager solutions, hedge fund partnerships, alternative risk premia, and special opportunities portfolios.
The full white paper is available for download from Investcorp's website.
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