Ironshield Capital Management CIO David Nazar explains why Europe’s lower-rated credit market continues to offer compelling opportunities through deep fundamental analysis, disciplined risk management and a focus on complexity over market themes.
David Nazar, CIO of Ironshield Capital Management has always been able to identify market opportunities for investing. “When the telecom media bubble burst in the early 2000s, I moved into distressed debt at Deutsche Bank and then went on to Bank of America and did the same thing. By 2007, banks were going into overdrive on regulation after Lehman Brothers collapsed so the pivot into hedge funds made sense for our investment universe.”
Ironshield invests in single b credits, to triple c through to stress,distressed and potentially defaulted debt, taking long and short positions across the portfolio to generate returns. Nazar explains the core investment universe for the firm, “ We’re not there to do direct lending, were investing in the lower end of the credit spectrum and we have always followed this strategy. So, the firm has strong experience of understanding different credit cycles.”
Typical investments are companies that have highly complex capital structures, with high leverage and specific credit issues. For Ironshield, opportunities for investment open up when the market potentially overreacts, misunderstands the situation or dosent have the depth of analysis to properly price credit. Nazar explains how that translates to a day-to-day workflow for the firm to analyse, “We are looking at cash flows, capital structures, credit documentation, downside scenarios. But importantly we are not focusing on sector or market themes to drive our trades.”
This unique offering can be appealing to investors who want to diversify their portfolio across asset classes and investments. However, Nazar explains that because Ironshield are so unique in credit investing and how they try to generate alpha, it is hard for investors to even categorise them. Nazar acknowledges that this can hamstring the firm somewhat in allocation decisions, “Being so unique can make it a harder proposition to get selected by investors, but we view that as just the flip side of us offering something different. If you look at our track record, we’ve delivered double digital annual returns, while keeping downside volatility very well controlled.”
Despite the firm’s continued success, Nazar has been keen not to expand the investment focus outside of Europe. “This is the best place to run this strategy, because there’s an attractive market. You get paid more in Europe for complexity and credit risk, because the competition is lower than the US and there is just less capital chasing those opportunities. So it’s at the low end of the credit spectrum.”
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