The current low yield environment has created greater interest in non-conventional segments of the credit market.
This was demonstrated by boutique investment bank Dexion Capital’s inaugural conference exploring “Opportunities across the credit spectrum”, held at the London Stock Exchange.
Investment managers who presented at the conference included Neuberger Berman, Alcentra, GSO Capital, Axa IM, DRC Capital, Gravis Capital Partners, Boussard & Gavaudan and CQS.
The keynote speaker at the conference was Edward Eyerman, head of European leveraged finance at Fitch Ratings, who gave an overview of European credit markets. The presentation noted the structural changes to several parts of the credit markets after the financial crisis and the continued impact of regulation on investor as well as issuer behaviour.
The conference was based around three themes. The first theme concentrated on income generation from maturing asset classes such as senior loans (US and European) and the revering structured credit universe. Significant demand for the sector, another panellist asserted, has driven a strong rally in some of the credit sectors, including the rerating of previously orphaned securities. Despite recent strong performance, panellists reiterated the attractive opportunities on a selective basis, with yields being the primary source of return.
The second theme highlighted the growing opportunities for alternative sources of capital to disintermediate traditional bank lending. Panellists argued that the deleveraging of bank balance sheets due to regulatory capital requirements and the withdrawal of capacity for new lending will leave a funding gap in areas such as property and infrastructure lending, where the closed-end investment company structure is well suited to being a provider of some of the required capital.
The final theme focused on more opportunistic credit strategies, where ongoing regulatory changes are also providing interesting opportunities. Hedge fund managers investing in the credit space also noted the opportunities on the back of the increased volatile environment, translating to interesting shorter dated and more tactically traded investments on the short side. Another trend discussed – in what one speaker called a structural shift – was the new types of investors entering the market, with a shift from hedge funds, banks and proprietary capital to the long-only investor community.
Tom Skinner, Dexion’s head of research, says: “With the hunt for yield continuing unabated, investors are looking for credit exposure, which has been reflected in the strong issuance and positive ratings within that space. This is something we think is likely to continue before the end of the year, and going forward, provided the well suited structure of listed companies.”
