The craft of credit investing

The only way to do great work is to love what you do

- Steve Jobs

Selecting credits, trading credits, managing risk, managing portfolios – to do so successfully requires skill and experience. We have been investing in non-investment-grade credit since 1997 and our passion for it continues, we’ve learned a few things about the craft of credit investing along the way.

As a credit investor, you have to understand that your upside is limited. So the cornerstone of your craft is guarding against the downside. Investors in equities can look to theoretically unlimited upside if positions work well. But fixed-income investments are never going to “go to the moon”. We look for investments that will pay us back at par when they reach maturity and deliver reliable interest payments in the meantime. Avoiding losses is the number one priority.

Our team manages portfolios of credit strategies including loans, high yield bonds, and structured credit. Our scale and extensive network make us one of the largest managers of leveraged loans across the US and Western Europe. Our integrated 70+ person team takes a bottom-up approach to the investment process, evaluating relative value across both the capital structure and issuers, through all four stages: sourcing, fundamental analysis, deal approval and risk management.

Successful credit investing requires a critical lens and a focus on fundamental analysis. The core of our craft therefore lies with our credit analyst team. Its members spare no effort to become experts in their industry sectors and evaluate macroeconomic trends and market technicals. The team carefully dissects both qualitative and quantitative fundamentals such as business model, cost structure, historical performance, and cashflow generation.

At our core, we are looking to answer the question, “Will this issuer be able to pay its interest income on time and then pay us back at par, and how is this done?” Through detailed analyses of issuer balance sheets and projections, competitor analyses, a deep understanding of industry and regulatory trends, and the ability to know what questions to ask or what potential pitfalls to look for.

We also benefit from having a decision-making process that has been refined over decades through multiple credit cycles. Specific to our liquid credit process, our credit analysts lead the research with our Corporate Credit Forum trying to stress their investment thesis from as many different angles as possible – thus ensuring that all our investment ideas are thoroughly tested. And when our Corporate Credit Forum votes, the decision must be unanimous. Any vetoes or dissenting votes will take the idea off the table.

To become an industry leader means putting in the time. Long tenures have been crucial to our success. Most of our analysts have decades of experience and have been on the team for an average of over 10 years. Our ability to draw from the expertise of our veteran investors has contributed to the team’s strong track record for over a quarter of a century.

Together, we have gone through various market environments and cycles – including default cycles. We have worked through the dotcom bubble, the oil and energy crisis, the global financial crisis, the COVID pandemic, and Russia’s invasion of Ukraine. We have seen volatility before. We have seen defaults before. And we have seen 5% base rates before.

Over the years, we believe our performance record speaks for itself and has earned the trust of our clients. Today, we have over US USD 55 billion in assets under management¹. Like Steve jobs, simply we love what we do. We have put decades into knowing our markets and honing our craft – whether that be managing leveraged loans, high yield, private credit or structured credit.

^1. Data as of 31 August, 2024