Artisan Partners has worked hard to create a strategy that can take advantage of opportunities across all phases of the credit cycle, in both benign and distressed environments, and found that the Covid-19 credit cycle created an environment tailor-made for its approach.
Dealing with the effects of Covid-19
Bryan Krug, Managing Director at Artisan and Portfolio Manager on its credit team, says: “At the onset of the pandemic, we were active in rescue financing solutions, identifying franchises that would need immediate capital infusions to avoid a liquidity crisis. And, as momentum behind the market’s recovery continued, we remained focused on idiosyncratic and catalyst-driven opportunities.”
Since the depths of the Covid-19 crisis, credit markets have made a significant recovery. But, until earlier this year, the rally had largely been uneven, leaving plenty of opportunities to take advantage of situational distress. Even as market benchmark valuations returned to pre-pandemic levels, areas hardest-hit by the pandemic—energy, leisure and retail—continued to trade wide of 2020 levels.
Krug comments: “We leaned into this dispersion, investing in companies facing difficult short-term trends, but with reason to exist in a post-Covid world.”
Opportunities
The firm has also seen plenty of opportunities across the capital structure in leveraged loans. “We tend to focus on loans of strong, niche businesses that are fully levered but have capital structures that are less liquid,” says Krug. “These positions have provided the portfolio with a material carry advantage over the market benchmark and a hedge against interest rate risk.”
In terms of new fund launches, Artisan has discussed creating a dislocation strategy to take advantage of the next drawdown in corporate credit markets, though the timeline for any launch is yet to be determined.
Krug says: “We think a strategy designed to take advantage of credit market dislocations could be a great investment idea for our clients at the appropriate time. As it relates to the bank loan market, we are also preparing to launch a floating rate strategy later this year,” he adds.
Evaluating portfolios
Artisan has seen a fair amount of M&A activity in asset management, with larger firms getting larger, while boutique managers continue to be small and focused. Artisan prefers to align its approach with the latter.
“Our ‘distraction-free investing’ model allows us to attract and retain talent by offering the infrastructure needed to manage portfolios, without the need to focus on the broader non-investment side,” Krug says.
“We realise that market dynamics, regulation, valuations, monetary and fiscal policy, and investor preferences are out of our control. Therefore, our role is to continue to generate strong returns and provide a great client experience. If we get that right, everything should fall into place,” Krug concludes.
Bryan Krug, CFA, Managing Director, Portfolio Manager, Artisan partners
Bryan Krug, CFA, is a Managing Director of Artisan Partners and the founding Portfolio Manager of Artisan’s Credit team. Prior to joining Artisan Partners, Krug was the Portfolio Manager of Ivy High Income Fund at Waddell & Reed from February 2006 to November 2013. Krug joined Waddell & Reed in 2001 as a high-yield Investment Analyst and was later promoted to Portfolio Manager. Earlier in his career, he was affiliated with Pacholder Associates as the primary analyst for a distressed portfolio. Krug holds a Bachelor’s degree in Finance from Richard T. Farmer School of Business, Miami University.
