Firms across the asset management industry are beginning to reflect on lessons learned from the pandemic as we move into a new phase. Andrew Brady, Partner, Co-Head of Corporate Credit at Marathon Asset Management, comments: “This environment has provided reminders to prioritise firm-wide coordination to serve clients by investing with humility and a margin of safety, avoid leverage on investment exposures, and to prepare for the unexpected, especially when risk tolerance is high, and attractive investments are scarce.”
Marathon has navigated the challenges through its belief that investment flexibility and objectivity, humility in forecasting, experience from past market dislocations, risk discipline, and integration across teams were critical to adapt to the changing landscape.
Recent trends
Among recent trends, Marathon has noticed reduced credit spreads while credit risks have increased, which has contributed to the convergence of structures within high-yield loans and bonds; increased government and central banking influence on markets; increased role of electronic trading of debt and automated trading in equities; consolidation of asset managers; increased share of private credit in high-yield markets; improvement in high-yield loan settlements and procedures; GIPS becoming required; ESG awareness and sensitivity; and improving transparency for clients, among others.
“These trends will likely continue,” Brady says, “but our unchanging focus is persistent credit discipline and objectivity while putting client needs first, which has led to record AUM, recurring client participation, and expanded client offerings. As we say, investing is not a sprint, but rather a marathon.”
Reacting to Covid-19
Co-ordinated firm-wide communication and leadership from Marathon’s investment teams and eight partners have been critical to evaluate the challenges and uncertainties of the last year, while also turning into investment mode despite significant uncertainty.
Brady says: “We had lighter than normal exposures before the pandemic given concerns about valuations, bullish sentiment, deteriorating credit terms, and economic weakness during 2019. The changing economic outlook required questioning asset values, outlook, downside protection, solvency, liquidity, and other factors across economies generally and high-yield credit specifically.”
This re-evaluation led to a disciplined game plan to identify which assets to patiently hold, which to sell, and which to buy. Buys started with investment-grade credit, then migrated to higher quality leveraged credit, then more idiosyncratic and dislocated credit situations across US and European high-yield loans and bonds.
“This was particularly the case in situations where we leveraged our expertise in stressed situations, relationships across companies and other investors, and provided capital solutions,” Brady adds.
Marathon plans to build on its track record of favourable performance and risk management across corporate credit, structured and asset-backed credit, and emerging markets.
“We believe our willingness to invest and raise capital opportunistically – as shown by creating subprime mortgage funds around 2007, corporate credit funds in 2009, structured credit funds such as PPIP around 2010, and European funds in 2011 to 2014 – was highlighted again in 2019 with a USD3 billion opportunistic draw-down credit fund that was particularly well-positioned over the past year,” Brady says.
Marathon continues to broaden its opportunity set for clients, by planning new funds focused on index-aware products for US high-yield bonds, royalties in emerging healthcare companies, and ESG criteria in emerging markets, as well as additional vintages of existing funds focused on asset-based opportunities, real estate opportunities in Europe and CLO equity.
Andrew Brady, CFA, Partner, Co-head Corporate credit, Marathon Asset Management
Andrew Brady, CFA, is a Partner and Co-Head of Marathon’s Corporate Credit business, and a Member of the Executive Committee. Brady serves as Portfolio Manager for Marathon’s Collateralised Loan Obligations (CLOs) in addition to other high-yield credit portfolios. He joined Marathon in 2004 after eight years with Indosuez Capital, the merchant banking and high-yield asset management division of Credit Agricole, where he was a Director and Senior Investment Analyst. He holds a BSc in Economics, with a concentration in Finance from University of Pennsylvania’s Wharton School of Business.
