Below are a few highlights from the episode:
[6:00] Evolution of Private Credit: The private credit market is enormous, with billions of dollars pouring in from the most sophisticated investors around the world. Most of that money goes to corporations and asset finance in a wide variety of industries like aviation or energy. “It’s become an asset class of its own, much like private equity 15 years ago,” explains Justin Plouffe. At The Carlyle Group, Justin and the team now cover the entire private credit universe. That’s everything from liquid tradeable loans and structured credit securities to loans for middle market companies.
[10:00] Dealing with the Recent Volatility: Volatility returned in oil and fixed income markets during the fourth quarter of 2018. The dramatic moves flipped the script on what was a benign risk environment. So, how did Carlyle react? “There was some time to place some trade, but, in the liquid markets, the Collateralized Loan Obligation (CLO) market, for instance, there were definitely opportunities to buy. And we did that,” says Justin, “In the other markets where it takes months and months to originate and structure specific deals, that kind of volatility isn't what you need. You need a longer-term type of downturn and change in the credit cycle to take advantage.”
[22:00] How to Utilize a Private Credit Strategy: Sophisticated investors may want to consider holding private credit to generate excess yield in a portfolio, according to Justin. They can also look at it as a hedge against interest rates because almost everything in private credit has a floating rate. One thing to understand is that the asset experiences bursts of volatility, but investors shouldn’t panic. He explains that this isn’t the part of a portfolio that should be liquid. This is the part that you want to be generating yield for you over a long period.
[26:00] The Carlyle Advantage: Being a part of The Carlyle Group may provide tremendous benefits to borrowers. They usually have senior operating executives that were previously in C-Suite positions at Fortune 500 companies. “We can put companies and borrowers in touch with industry experts to help them grow their business,” says Justin, “We also have a purchasing power program across our portfolio companies.” In our view, small companies in the program may benefit enormously.
For more, listen to the full episode, Private Credit Markets: Delivering Unique Income
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