The following article is from Investor Strategy News, profiling credit manager Napier Park, a Principle Advisory Services client.
Written by Greg Bright.
You can read the original article here.
Park doesn’t charge any fees on that money until it is called on for investment. This allows clients to stay fully invested at all times, which is particularly important when cash rates are so low or even negative.
a Sydney-based third-party representative, Principle Advisory Services. Napier Park has several small clients in Australia and Leitch says has had some meaningful conversations with regional asset consultants. The $14 billion is
split between three main strategies: traditional credit, of about $5.5billion which is mostly invested on a multi strategy basis; CLO business, with the firm managing about $6.5 billion in CLOs on behalf of other investors in the
US; and, private investment, including leasing and real estate and consumer lending, about $2.2 billion.
this month at least, has been driven by the big tech stocks. With interest rates at, or near, negative and other initiatives from the Fed and the US Administration, there is “an enormous stimulus”, Dorfman says. “The Fed is
intentionally putting money in people’s pockets by assisting with mortgages… But, in the end with negative interest rates credit as an asset class will perform well.
their budget,” Dorfman says. “The $500,000 a day is miniscule in a market worth around $2 trillion. This market is being driven completely by non-government participants.”
- The US election is an obvious risk. With the Government stimulus they failed to pass the ‘Care Package’ and need to be spending more, even if it is more targeted, which it probably will be
- The historic level of financing by companies over the past six months, which is money that will have to be
paid back. If there is not a rise in growth, there could be a rise in defaults
- Valuations are too high and will revert at some stage, and
- Worldwide technology is a “real risk”, Dorfman believes. During the 1998 Asian currency crisis a collapse in
interest rates created a similar situation to what is happening now, with a huge upgrade in growth assets,
especially tech companies.
The main business risk for Napier Park is for there to be a breakdown in liquidity, but Dorfman points out that the firm is highly diversified and the portfolios are actively managed. With private lending, for instance, you can manage the risk prole by adjusting duration. “We studiously avoid binary outcomes,” he says. We want there to be different scenarios.”
One area which has taken o during the work-from-home trend is what’s known as either the “fix and flip” or “renovation rehab” market in residential property.
Leitch says: “The property market is flipping upside down since COVID. Millennials (age 24-49) are now demanding more suburban properties, with yards, rather than apartments. The average house in the US is 40 years old and
there is a substantial business in renovations. The loans are by and large of about a 12-month duration and we get an 8 per cent return from the developers. We want to buy short duration, high yielding assets with good collateral…
When you look at the credit market over the past 10-15 years the best times to be had by investors are when there is some form of dislocation. We spend a lot of time talking with clients about this and why contingent vehicles make
a lot of sense. You need to be prepared to act when the opportunities present themselves.”
Ken Licence, the managing director of Principle Advisory who oversees the on-the-ground marketing for Australasia, says opportunities for credit investors tend to be “very episodic”. “When they occur, it can be challenging for some
investors. That’s why you need the ability to invest early in a downturn before the recovery has been priced into the market.” Licence says that there is a lot of interest in credit being shown by Australian and New Zealand institutional
investors. – G.B.