Rising Credit Risk

As emerging managers, we have a keen focus on capital preservation. This has become increasingly important as interest rates have risen along with borrowing costs. While we're able to capture additional yield from our investments, a company's ability to meet its interest payment obligations has become increasingly difficult.

What's even more important is a company's ability to refinance its debt. In a recent interview with David Rubenstein, Howard Marks, the co-founder of $172bn investment group Oaktree Capital Management and a legendary investor in distressed debt, commented that "companies do not repay their debts, they simply refinance." He went on to say, "most bankruptcies or defaults are associated with a maturity that goes unmet."

We couldn't agree more. And as investors, we want to ensure that if a company is unable to refinance its loan, we have assets or receivables that can make us whole.

Our Safety Net

If you look across our private credit portfolio the majority of loans are backed by an existing book of business and, in some cases, physical assets.

Take one of our recent loans that provides working capital to finance purchase orders for freight forwarders, importers and exporters. Each purchase order is backed by a physical asset that, in the event of non-payment, can be resold to another buyer. In some cases, an insurance wrapper is purchased to protect the assets and receivables that are part of a transaction.

We acknowledge that it's impossible to predict the future. Anything is possible. So we de-risk our investments and ensure no single investment can materially impact fund capital or distributions. We also take every step possible to de-risk investments in a particularly uncertain and riskier economic environment.