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Alternative Market Briefing

Private credit catches the eye fixed income players

Wednesday, January 28, 2015

Bailey McCann, Opalesque New York:

A new white paper from BroadRiver Asset Management places the future of fixed income in the private credit markets. "The rate of interest for traditional fixed income no longer matches the cost of offsetting liabilities," authors write. "For a while, as interest rates fell during the most recent crash, investors booked gains to offset falling yields. Then came the challenge of redeploying capital into a low rate environment, which brought out the old tool kit of moving down in credit quality or increasing leverage, both of which were constrained by many investment policy statements, not to mention the increased risk. Yet, even when these limitations were eased, rates on lower-quality instruments have also fallen below investors’ income needs and are no longer sufficient to compensate for the increase in risk."

Instead of traditional fixed income investments, more managers are looking to the role of private credit investments to perform similarly to their fixed income portfolio but with better downside protections. "In accessing various "private debt" or "private credit" strategies, institutional fund managers have been able to look beyond the proxy of a debt rating for acceptable credit risk and capture yields closer to or even above the cost of their funds’ obligations," the paper says.

These pockets of the credit universe are not as tightly correlated as public equities and trad......................

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