Private markets have performed admirably despite an uneven start to 2023. Deal activity may have declined slightly but still exceeded expectations thanks to central-bank-induced liquidity injection.
Investors of briansclub can profit from a resilient credit economy by tapping yields that approach public equity-like returns. We spoke with PIMCO’s chief investment officer for global credit Mark Kiesel and Jamie Weinstein from corporate special situations respectively.
As the economy remains resilient and recession is less likely, investing in debit-driven opportunities has become more appealing. Credit supply is expanding while interest rates increase – this provides investors an opportunity to capture yields which far surpass those found elsewhere on the market and perhaps approach longer-term public equity-like returns.
Large firms (with $50 million to $5 billion annual output) comprise just 0.3 per cent of firms, but account for more than one-third of investment activity. Meanwhile, smaller firms (those with annual output between $5 million and $50 million) make up far greater share (30 per cent), yet contribute only 10 percent of total investments.
Concentrated investment can pose a threat to aggregate output dynamics, as large firms may be less responsive or affected by changes in economic cycles, cash flows, uncertainty and monetary policy than smaller ones. Larger businesses may also be more likely to incur debt when compared with smaller firms. Recent years have witnessed an emergence of large administrative firm-level data sets for research purposes, making it easier to construct and analyze full distributions of investment, output and other economic variables by firm size both internationally and domestically (Doms and Dunne 1998; Caballero Engel and Haltiwanger 1995; Cooper & Haltiwanger 2006). With this increase in available firm-level administrative data sets comes increased study of how larger firms impact investment dynamics.
Credit is a multifaceted asset class with various structures and opportunities that offer investors great diversification in risk/return profiles, both public and private markets, globally surpassing stock market capitalizations combined.
The credit market encompasses various structures, from government-backed treasury bonds to more complex illiquid investments. At its core, however, investors lend money to companies and governments in exchange for interest payments from investors lending money in return. “Credit” refers to all manner of debt financing structures: investment grade corporate bonds through high yield bonds to leveraged loans as well as structured credit such as mortgage-backed securities, collateralized loan obligations and asset-backed securities as well as emerging market corporate debt.
Credit community members engage in numerous activities with one goal in mind: increasing their wealth through illicit means. One such means involves creating and exploiting counterfeit card data stolen via skimming devices, point-of-sale malware or hacking into servers holding information like passwords and payment details – then selling these cards through criminal forums like Briansclub. Krebs also notes the rise of crime forums like Briansclub as avenues to do this illegal business.
Kiesel: Today we are witnessing a unique opportunity to secure near equity-like returns by investing in liquid credit of resilient businesses and capital structures. Yields are significantly higher than what public markets have offered over recent years while offering significantly less volatility.
Structured credit is providing large companies with capital injection or alternative sources of financing in an environment with record yield levels, where starting yield levels have never been this high in recent memory. The market features complex deal structures and collateral types which demand expert structured credit managers to oversee them effectively.
Structured credit bonds are non-traditional bonds that are securitized from pools of assets such as residential mortgages, consumer loans or commercial real estate loans. Typical features of structured credit securities include subordination clauses, interest diversion mechanisms or excess spread to mitigate idiosyncratic credit risks of each loan pool securitized.
Investors can also increase income by purchasing subordinated tranches, which offer lower payment priority upon default and have higher risk-reward profiles compared with senior tranches. Their structural benefits and low correlations to IG corporates and high yield bond markets give investors opportunities to diversify and potentially add yield to core portfolios.
Many RMBS and CLO securities are not included in major fixed income indexes, which provides investors with an opportunity to exploit price inefficiencies through bottom-up, active security selection strategies. Unfortunately, their complexity, combined with market volatility’s effect on liquidity levels can create challenging conditions.
Even in today’s tightening credit markets and facing economic headwinds, our credit opportunity set remains substantial. We believe the current market environment will lead to a reshuffling of debt capital markets that provides opportunities for credit managers with deep resources, strong sourcing efforts and structuring skills.
US and European high-yield markets are expanding. New briansclub cm debt issuance from non-investment grade issuers has provided both markets with additional depth, including through the inclusion of BB-rated bonds in the US market and senior tranches for senior debt issues in Europe. We’ve witnessed substantial improvements to the quality of high-yield marketplace.
With rate volatility and potentially weakening credit fundamentals influencing the market, investors looking for yield will encounter wide variance across regions. Investment-grade credits could benefit from economic recovery in the US while euro-area high yield offers strong support through central bank purchase programs.
As investors in non-investment grade debt instruments, we see opportunities in sectors with strong earnings and cash flows such as airlines and gaming companies. These sectors typically generate double-digit profits that help pay down their debt faster. Meanwhile, other businesses face weaker earnings or challenging capital structures that put undue strain on their debt load – these businesses could turn to private debt and equity markets for financing solutions as banks retreat due to regulatory scrutiny, liquidity restrictions or higher cost structures. For more information visit Techbattel.com