Strategy

STRATEGY

• Provide investors exposure to otherwise difficult-to-source assets falling outside the scope of traditional private credit strategies by providing tailored financing solutions to specialist non-bank lenders, banks and corporates 
• Seek out less-crowded areas of the market where the investment team’s origination channels, underwriting and structuring capabilities offer a competitive advantage
• Invest in contractual cashflows derived from diversified sources of credit exposure (obligor, product, geography) with tailored structures that provide a high degree of alignment with counterparties
• Employ extensive structuring playbook to deliver bespoke solutions to address complex needs of counterparties

RISK TRANSFER OPPORTUNITY

• Material re-pricing of credit risk has created an attractive entry point into asset-based credit which can deliver low-mid teens net returns (USD IRRs)
• Increases in credit spreads and risk-free rates have put pressure on lenders that is restricting the supply of credit
• The strategy offers resilient return profiles that are a function of asset performance and limited operating risk
• European markets are attractive structurally due to geographic fragmentation and less sophistication than the US market
• Estimated market of $100bn provides ample scope to achieve scale while being selective

APPROACH

• Specialize in identifying transactions with greater disparity between regulatory and economic risk, thereby enhancing overall economics
• Employ a value-driven strategy with focus on capital preservation by utilizing our competitive advantages to source unique transactions, conduct intensive fundamental and quantitative credit analysis, and thoughtfully negotiate and structure investments
• Seek to obtain secured exposure to short-duration, preferably self-liquidating assets with predictable performance attributes in niche markets overseen by capable management teams 
• Deliver bespoke solutions for underserved borrowers that offers investors access to differentiated origination channels, underwriting or servicing
• Focus on structures and jurisdictions with more predictable paths to realization of asset value in downside scenarios

SPECIALTY FINANCE OPPORTUNITY

• Obtain direct exposure to a diverse range of difficult-to-source assets originated and serviced by specialist non-bank lenders
• Evolving regulatory and accounting standards has caused banks to retreat from certain markets and created the opportunity for specialist non-bank lenders
• Low-mid teens expected returns are derived from contractual cashflows with limited expected volatility
• Circa $60bn market size
  
  

Investment Philosophy

DIFFERENTIATED SOURCING

• Approach allows the investment team to identify most attractive risk-adjusted investment opportunities across a broad spectrum of bank and non-bank relationships
• Seek to limit dependencies and biases by continuously developing new relationships, while cultivating existing ones

OPERATE IN NICHE MARKETS WITH FAVORABLE DYNAMICS

• Identify investments where constraints on the counterparties result in non-economic behaviour and which strengthen the negotiating position and enhances return potential
• Monetize complexity, liquidity and size premiums where other investors may have limitations

INVEST IN ASSETS THAT GENERATE PREDICTABLE CASHFLOWS

• Self-liquidating or amortising cashflows reduces the reliance on a bullet refinancing or asset sale to realize exits
• Rigorously define collateral eligibility criteria with buyback guarantees for non-compliance thereby increasing the predictability of cashflows

SEEK TO LIMIT CORPORATE GOING CONCERN RISK

• Utilize structure to mitigate the going concern risk of the asset originator / servicer from the collateral asset portfolio performance
• Design a borrowing base formulation for credit availability or reference portfolio that dynamically de-risks upon information on asset or originator / servicer underperformance
• Seek to perfect security interests with stringent controls on cash management

STRUCTURE TO MANAGE DOWNSIDE RISK

• Seek additional credit enhancement to reduce the likelihood of misalignment in a work-out
• Contract with back-up servicers or otherwise mitigate servicing transfer risks where appropriate
• Incorporate early termination rights and make-whole penalties where feasible

PROACTIVE MONITORING & EXERCISE OF RIGHTS

• Utilize third party auditors to independently verify asset performance and credit events (where applicable)
• Engage with specialist outside counsel as appropriate to evaluate and implement assertive strategies designed to increase counterparty performance and deliver stringent collateral control rights