UBS Private Wealth Management announced that William Wright and Matthew Hoffman will be joining the firm in New York City, along with Senior Wealth Strategy Associate Audrey Kaus.
The team will be located in the firm’s 1285 Avenue of the Americas Private Wealth Management office and will report to Market Directors Thomas Conigatti and Neal Cooper.
“We’re thrilled that Will, Matt and Audrey will be joining our team, and we look forward to supporting them as they build and grow their careers here at UBS,” said Tom Conigatti, Market Director at UBS Private Wealth Management. “Their combined talents and dedication to client success make them a great addition to our culture and will help us to continue delivering unparalleled financial advice to our clients.”
“Will and Matt have extensive experience and deeply understand their clients’ sophisticated financial needs,” said Neal Cooper, Market Director at UBS Private Wealth Management. “With our firm’s global resources and capabilities now at their disposal, I’m confident that they will be able to provide even greater value for clients throughout their financial journeys.”
Wright and Hoffman advise high-net-worth individuals, entrepreneurs, business owners and corporate executives on all aspects of their wealth, including trust and estate planning, philanthropic giving and asset management advice.
The team offers access to opportunities beyond day-to-day portfolio management, including next generation education programs, innovative philanthropic and legacy planning strategies, and family office experiences that incorporate lifestyle services.
William Wright will join UBS from J.P. Morgan Private Bank as a Managing Director and Private Wealth Advisor. Will has more than 18 years of industry experience and began his career in financial services with Goldman Sachs in 2006. He serves a select circle of families whose significant wealth creates ongoing and often complex considerations. Through a deep understanding of each client’s balance sheet and expected cash flows, Will strives to provide clients with the clarity and guidance to make smart decisions. Will earned a Master of Business Administration from Duke University’s Fuqua School of Business and holds a bachelor’s degree from Syracuse University. He is also holds the Certified Public Accountant (CPA) designation. Will lives in New York City with his husband and dog. His interests include history, dogs, gardening in pots, wine collecting, music and fitness, as well as traveling to the mountains for skiing and hiking.
Matthew Hoffman will join UBS from J.P. Morgan Private Bank as a Private Wealth Advisor. Matt began his career in financial services in 2015 and advises a limited number of C-suite executives, entrepreneurs and high-earning professionals with multigenerational wealth. By understanding clients’ long-term objectives, Matt is able to provide objective advice around clients’ balance sheets and cash flows. Matt earned a Bachelor of Arts in Economics from the University of Michigan. He resides in New York City where his interests include golf, tennis, and NY sports. Matt enjoys getting out of the city on the weekends to hike and fish.
Audrey Kaus will join UBS from J.P. Morgan Private Bank as a Senior Wealth Strategy Associate. In her role, she will be responsible for managing all team operations and client requests, while supporting overall business development for the team. Since beginning her career in 2022 at J.P. Morgan, Audrey has led with a client-centric mindset, centered around delivering a personalized experience that is both effective and tailored to each client’s individual goals. Audrey earned a Bachelor of Arts in Business-Economics and a Bachelor of Arts in Spanish from The University of Chicago. She lives in New York City, and her interests include fitness, country music, cooking, animals, and travel.
In a year where more Americans are reaching 65 than ever before, lingering economic concerns are casting a shadow over many workers’ retirement prospects. A research from the Nationwide Retirement Institute® (NRI) reveals a gender disparity in retirement confidence and readiness among current U.S. workplace savers as women report more challenges than their male colleagues.
NRI’s In-Plan Protected Retirement survey of 1,200 employer-sponsored retirement plan participants revealed one in four women (23%) feel they’re “on the wrong track” for retirement, versus 15% of men, and 41% hold a negative or neutral outlook on their retirement planning compared to just 29% of men.
This gender disparity is further demonstrated by the fact that women are less likely than men to have reached key savings milestones, like saving enough for an emergency fund or adjusting their retirement investment allocations.
Today’s macroeconomic landscape may be throwing women retirement savers off course. The report found that women are more likely to be concerned about a recession or economic downturn and the impacts of rising costs or market volatility on their retirement savings.
As a result, more than half of women are concerned about outliving their income in retirement (52%). However, only 13% have diversified their investment portfolio and only 15% looked for other investment options that offer protection during economic uncertainty.
“Women are actively participating in their employer-sponsored retirement plans alongside their male counterparts, but they’re also facing a variety of challenges that can make navigating their retirement journey more complex,” said Cathy Marasco, leader of Protected Retirement for Nationwide Retirement Solutions. “Women are likely to live longer in retirement, so it’s understandable that fear of outliving their income would be a source of anxiety. The good news is there are new solutions available for employers to help plan participants address concerns about income in retirement.”
Outliving savings is a top concern, but protected retirement solutions can help
In addition to navigating the current macroeconomic landscape, another top challenge for 60% of women savers is determining how long they will need their retirement savings to last. Only 11% have created a plan to convert their savings into income in retirement. They also have other common concerns about their money, including the cost of health care (69%), Social Security not being there when they’re ready to retire (68%), and being able to manage expenses and lifestyle choices during retirement (52%).
Because of these challenges and concerns about their savings, many are interested in solutions that can help. Three in four women say they wish their 401(k) provided a “pension-like” income stream and nine in 10 women say that they would be at least somewhat likely to roll over their money into an in-plan protected retirement solution if it was offered to them.
“Women who participated in our study say a pension-like income stream would reduce their stress, increase their financial security and improve their peace of mind,” said Marasco. “This sentiment aligns with our research showing pension holders are more financially confident and less concerned about outliving their money than those without pensions. It’s time for employers to extend those same benefits to today’s workers by offering a guaranteed lifetime income investment solutions through their qualified employer-sponsored plan.”
To learn more about Nationwide’s Protected Retirement solutions and how they can offer plan participants guaranteed income for life and protect against market volatility, visit Nationwide’s resources for financial professionals and plan sponsors.
International advisor Ricardo Sucre is the latest recruit by Bolton Global Capital to exit Morgan Stanley.
With a career spanning more than three decades, managing ultra-high net worth individuals from Latin America, Sucre has developed and maintained relationships with international clients, resulting in a $200 million AUM business portfolio, Bolton said in a press release.
Prior to joining Morgan Stanley in 2014, Sucre held senior positions at Mercantil Commercebank in the areas of private banking, treasury sales management, and investment services. Notably, as a Senior Financial Consultant, he managed portfolios for ultra-high net worth clients executing trades across emerging markets, domestic corporate debt, and US government securities, the firm added.
At Bolton, Sucre will be joining forces with Ernesto Amengual, Leonardo Tedeschi and Jorge Aguerrevere. He will be based out of Bolton’s Miami office at the Four Seasons Tower on Brickell Avenue.
“As a consummate professional, Ricardo will undoubtedly continue along the same the path of success with the support of Bolton’s robust international wealth management capabilities. We are delighted that he is joining our firm.” said Bolton’s CEO Ray Grenier.
He has a Bachelor of Arts in Business Administration and a Major in Finance from Universidad Santa Maria in Venezuela.
BCP Global, a Miami-based fintech company, launched BCP Global-managed iBonds portfolios. This investment option utilizes BlackRock’s iBonds ETFs as underlying assets.
The initiative represents an opportunity for Latin American financial institutions and advisors to offer BlackRock’s iShares iBonds™ ETFs to clients through BCP Global’s innovative and user-friendly technology, the firm said.
“At BCP Global, we are dedicated to empowering financial professionals in Latin America with cutting-edge digital solutions, ideally suited to the current financial climate” said Santiago Maggi, COO & Co-Founder of BCP Global.
This product is particularly timely, aligning with the current financial focus on fixed-income investments. The iBonds ETFs, an innovative suite of bond ETFs with a fixed maturity date, offer a unique blend of benefits – certainty of maturity like a bond, flexibility of trading like a stock, and diversified exposure like a fund, the press release notes.
BCP Global, known for its ONE APP Solution introduced in 2022, continues to shake the LatAm financial sector.
“Our collaboration with BlackRock to offer iBonds ETFs is a testament to our commitment to providing diverse, simple, and accessible investment options,” said Mauricio Armando, CEO & Co-Founder of BCP Global.
“The ONE APP offers a comprehensive range of U.S. financial services, making it easier for clients across Latin America to access a variety of financial solutions. Integrating the BCP Global managed iBonds portfolios into this platform represents a significant step forward in democratizing investment opportunities for the LatAm market,” the company added.
The BCP Global managed iBonds portfolios are tailored to various risk profiles, including conservative, moderate, and growth strategies, ensuring a suitable option for every investor. Through the ONE APP, investing in these portfolios is straightforward, efficient, and user-friendly.
Photo courtesyGautam Samarth, CFA, head of Systematic Investment Strategies at M&G
M&G will present its M&G (LUX) Episode Macro Fund strategy at the X Funds Society Investment Summit in Palm Beach.
During the event, to be held April 11-12 at the PGA National Resort in Palm Beach, Gautam Samarth, CFA, head of Systematic Investment Strategies at M&G will discuss the investment virtues of its offering.
“The Fund has a very flexible investment approach, with freedom to invest in fixed income securities, equities, convertible bonds, asset-backed securities, currencies, cash, near cash and deposits,” says information provided by the firm.
Furthermore, M&G adds that these assets can be “issued anywhere in the world, including emerging markets, and denominated in any currency”.
Finally, the fund manager clarifies that the fund “will gain exposure to these assets primarily by taking investment positions at index or sector level through derivative instruments, but may also invest directly.”
About Gautman Samarth
Gautman Samarth is head of Systematic Investment Strategies at M&G. With more than seven years of experience in quantitative strategies, he started managing systematic equity strategies in August 2018.
He joined M&G in 2014 as a specialist analyst in the M&G Leaders team. Previously, Gautam worked for five years at Credit Suisse in New York, where his last position was in the HOLT investment strategy team.
He graduated from Trinity College (Hartford, Connecticut) in 2009 with a B.A. in economics and a minor in Chinese, and is CFA certified.
BNY Mellon will showcase the virtues of urban mobility for professional investment at the X Funds Society Investment Summit in Palm Beach.
During the event, which will be held on April 11 and 12 at the PGA National Resort in Palm Beach, George Saffaye, Global Investment Strategist, will present the BNY Mellon Mobility Innovation Fund.
The strategy managed by Newton Investment Management “is at the forefront of the disruption taking place in the traditional transportation ecosystem,” according to the firm’s description.
Furthermore, BNY Mellon states that “the goal is to identify companies that will participate in the theme and will become the future leaders of the space as it evolves to drive growth and strong future returns for investors.”
The portfolio is comprised of companies focused on finding solutions to the urban mobility challenges we face to move assets, people, and data across the transportation landscape in a safer, cleaner, and more efficient manner, adds the firm’s information.
About George Saffaye
He is a Global Investment Strategist specializing in Thematic Equity, US Large Cap Growth Equity, US Small Mid Cap Growth Equity, and Global Natural Resources strategies.
Saffaye joined Newton IM in September 2021, following the integration of the equity and multi-asset capabilities of Mellon Investments Corporation into the Newton Investment Management Group. Before joining Newton, he was a Global Investment Strategist, Senior Portfolio Strategist, and Investment Strategist at Mellon Investments Corporation and The Boston Company Asset Management (both BNY Mellon group companies). Saffaye also worked at Dreyfus, Credit Suisse Asset Management, and Warburg Pincus.
He earned a BBA in Finance and Investments from Bernard Baruch College of the City University of New York.
Many investors are significantly reshaping their approach to risk management and asset allocation as they diversify their portfolios in response to rising geopolitical tensions, higher interest rates, persistent market volatility, and upcoming electoral processes. These are some of the main conclusions drawn from the annual survey by Nuveen, TIAA’s investment management arm, of more than 800 institutional investors worldwide.
“In our regular interactions with clients and in our recent survey of over 800 institutional investors, we gauge how $18 trillion in assets will be put to work and managed over the next two years,” explains Mike Perry, head of Nuveen’s Global Client Group.
According to Perry, three clear themes dominate investors’ attention when positioning portfolios in the new environment: “The first is the immense appetite for exposure to energy innovations and infrastructure projects as the energy transition progresses. The second is the preference for private corporate debt and venture capital in a context of growing capital allocations to alternative investments. The last is that, to position themselves in a way that they can take advantage of these opportunities in time, investors allocate a portion of their portfolio capital to high-quality, liquid fixed income instruments.”
Energy Transition
For 55% of the global investors who responded to Nuveen’s annual EQuilibrium Global Institutional Investors survey, they believe they can significantly influence the energy transition through their investments, and 57% indicate that they have or are seeking exposure to alternative energies (renewables, nuclear, hydrogen). Additionally, 51% are interested in allocating funds to new infrastructure projects, such as those related to grid energy storage and battery storage.
In Asia-Pacific (APAC), the interest of corporate pension funds in nature-based solutions is above average, and in Germany, pension funds show an above-average interest in carbon credit markets. Meanwhile, North American public sector pension funds indicate an interest in improving existing infrastructures that is above the survey average.
Nearly 90% of investors (88% globally, 81% in North America, 93% in the EMEA region, and 89% in the APAC region) are focused on the energy transition in one way or another. According to the survey, the smallest group, at 9%, are pioneers in the energy transition. The largest group (37%) “keeps pace,” as they structure portfolios to reflect the current energy mix in the economy, while 23% are “starting” and 19% are doing what is necessary to comply with regulatory requirements.
“Investors clearly understand their influence and consider state policy and technical innovation as the biggest drivers of investments in the energy transition for the year ahead. 39% believe politicization will be the biggest obstacle and highlight the importance of partnering with active managers who have solid experience in seeking and exploring the most attractive opportunities,” adds Perry.
Private Markets and Their Appeal
The survey shows that investors continue to bet on private markets, as 55% (60% in North America, 49% in the EMEA region, and 59% in the APAC region) plan to increase their allocations in the next five years, with private credit and venture capital as the main options. The trend, however, is less pronounced compared to last year’s survey, when 72% (73% in North America, 67% in the EMEA region, and 79% in the APAC region) expected to increase allocations to private markets.
In fact, some investors also plan to increase their allocations to private real estate (24%), commodities (22%), hedge funds (21%), private placements (19%), and forest land and agricultural land (12% in both cases).
APAC public sector pension funds are leading, as 72% plan to increase investments in private markets in the next five years. North American insurers and endowment/foundation funds are not far behind, with 68% and 71%, respectively.
Lastly, private corporate debt and venture capital are considered the most attractive asset classes among investors looking to bet on alternative investments, led by North American public sector pension funds (57% plan to increase private credit) and Japanese investors (59% plan to increase it in venture capital). Although interest in private corporate debt and venture capital is generally high across all regions, it was not the first choice in all: private infrastructures were the first choice for German investors (53%).
Reducing Risks
Nearly two-thirds (65%) of surveyed investors (62% in North America, 68% in the EMEA region, and 63% in the APAC region) assert that we are in a new market environment that is changing the way they manage risk and return. Eight out of ten (81% in North America, 81% in the EMEA region, and 78% in the APAC region) state that the era of ultra-low interest rates has been left behind to enter a context of higher interest rates for longer.
Half of the investors (50% globally, 53% in North America, 48% in the EMEA region, and 50% in the APAC region) plan
to increase their portfolio duration in 2024 (in last year’s survey, only 39% of investors planned to increase the duration). At the same time, the percentages of investors planning to strengthen “inflation risk mitigation” and “liquidity” strategies decrease compared to the previous survey (from 64% to 41% and from 41% to 37%, respectively).
For liability-oriented investors, higher interest rates and the resulting improvements in funding states represent an opportunity to reduce portfolio risk by adding duration.
The normalization of interest rates has created new opportunities for many investors to reduce risk, moving away from equity markets and towards high-quality public and private fixed income. Compared to last year’s survey, a significantly larger number of investors are reducing exposure to equities (40% globally, 33% in North America, 44% in the EMEA region, and 44% in the APAC region) compared to those increasing it (28% globally, 25% in North America, 26% in the EMEA region, and 37% in the APAC region).
Nearly half of the investors (48% globally, 49% in North America, 49% in the EMEA region, and 44% in the APAC region) state that they plan to increase their allocations to investment-grade fixed income, likely reflecting investors’ expectations of an upcoming economic slowdown. 38% plan to increase their allocations to private fixed income, where investment-grade corporate debt is the main option.
About one in five investors also indicates that, in the next two years, they plan to increase allocations to listed securitized debt (CLO, MBS, etc.; 22%) and to sub-investment-grade fixed income (high yield or junk bonds, widely syndicated loans, etc.; 21%).
“In all segments of fixed income, corporate debt is attracting investors’ interest. Corporate instruments are the first choice for investors aiming to allocate capital to both investment-grade and non-investment-grade fixed income markets, as well as to private fixed income markets. Investors see more value than before in these fixed-rate debt instruments. And for those more liability-oriented investors, high-yield fixed coupon bonds have become an attractive way to improve liability management,” Perry notes.
According to the survey, although investment-grade corporate debt is generally the first choice for planned allocations to private fixed income, there is dispersion among different types of investors. Insurance companies show a greater preference for private infrastructure debt, while endowments and foundations opt for opportunistic private debt, and North American public sector pension funds decisively opt for middle-market senior loans.
Thornburg Investment Management has appointed Richard Kuhn as Head of Product and Jonathan Schuman as Head of International to boost the company’s growth and innovation objectives, effective April 1.
Kuhn comes from Invesco and will report to Jesse Brownell, Global Head of Distribution.
He spent 20 years at Invesco and in his most recent role as head of U.S. Product Strategy&Development, Kuhn spent “eight years innovating, developing and implementing strategic plans for both retail and institutional product lines,” industry sources told Funds Society.
Schuman comes from Weston Partners and will report directly to CEO, Mark Zinkula.He spent 12 years at Matthews Asia as Global Head of Distribution and Global Head of Business Development where he built the firm’s international business from the ground up.
Previously, he worked at AIG and PineBridge Investments in Japan, according to his LinkedIn profile.
Newton Investment Management, part of BNY Mellon Investment Management, has announced the appointment of Tjeerd Voskamp as Global Head of Distribution in a newly created role.
Voskamp will report to Euan Munro, CEO of Newton, and join the Newton executive management committee.
He will be responsible for driving institutional distribution strategies and working closely with BNY Mellon Investment Management to leverage their distribution channels.
The appointment supports the expansion of Newton as a global asset manager, with $105.98 billion of assets currently under management. Voskamp brings over two decades of experience in leading sizeable global distribution teams. He joins from J O Hambro Capital Management, where he was Head of Distribution for UK, Europe and Asia and was responsible for identifying international growth opportunities and overseeing the firm’s European distribution expansion.
Prior to this, Voskamp led global sales teams covering both institutional and wholesale client channels at Aviva Investors, Schroders and Columbia Threadneedle.
“TJ has an established network of relationships, bringing expertise in sales management and using data tools to improve client efficiency and experience,” said Euan Munro, CEO of Newton Investment Management. “I am thrilled to be working closely with him as we look to enhance Newton’s global distribution footprint and continue working with our clients to deliver their desired investment outcomes.”
Newton Investment Management Group provides investment management services to institutional clients, including pension funds, sovereign wealth funds, central banks, endowments, foundations, insurance companies, registered mutual funds, other pooled investment vehicles and other institutions. Its current office locations include London, Boston, New York, San Francisco and Tokyo.
Photo courtesyLaura Vaughan, Head of Direct Lending de Federated Hermes.
Laura Vaughan, head of Direct Lending at Federated Hermes, has a very clear claim: “Private markets may still be classified as alternative investments, but in many ways they have matured into part of the mainstream.” In his experience, investors were attracted to its low volatility, its limitation with other asset classes and the cash income for calculating liabilities. In this interview he gave us his vision on private assets, delving into direct credit.
Private assets have gained popularity and relevance in the last 12 months, what do you think has been behind this increased interest in them?
Over the last 12 months, the attractiveness has increased further as the underlying investments in private debt are floating rate loans. So as EURIBOR, for example, increased from negative to close to 4%, this additional yield flowed straight through to investors’ return.
Do you see this trend continuing in 2024, and what could continue to drive interest in them?
Yes, the yield available from a direct lending investment remains very attractive in the current environment. With an expectation now for central banks to be patient with rate cuts, this robust yield environment will not change materially. Coupled with an expected uptick in private equity M&A activity, driven by for example a more stable interest rate environment, and the large amounts of dry powder needed to be invested by private equity funds, the level of demand for loans will remain strong, and therefore direct lenders will continue to be able to deploy at a steady rate.
One of the private assets we have heard most about is private credit. What does it bring to investors’ portfolios right now?
The sharp rise in interest rates from record lows over the last two years has resulted in higher yields at a time when inflation has been rising, allowing the private credit asset class to act as an inflation hedge to a certain degree.
Direct loans to small and mid-sized European businesses have continued to generate strong and steady yields over the last decade, even showing resilience during the pandemic. By contrast, yields from traditional fixed income securities remain low and corporate direct lending offers investors an illiquidity premium to boost portfolio returns as well as low degree of volatility relative to the public asset classes.
In a context that has changed (technical recession in major countries, very gradual decline in inflation, change in central bank monetary policy), what do you think is the best way to approach private debt investment? Why go for direct lending? What does this asset class bring to the table?
After nearly two decades in a low interest rate environment in Europe, the direct lending market is adjusting to a period of higher-for-longer. It continues to offer investors an attractive level of stability in their investment portfolios. An allocation to direct lending, focused on the right strategy, can provide an investor with limited correlation to other asset classes, low volatility compared with public markets, diversified exposure to underlying industries, quarterly cash income and an element of inflation protection.
The sustained higher interest rate environment will benefit investors who have backed conservative direct lending funds. As loans are floating rate assets, investors will benefit from the rise in base rates on loans. However, companies burdened with high levels of financial leverage will continue to struggle under the increased cost of debt. This will put pressure on their debt service coverage covenants and will cause increases in defaults. As a result, restructurings will increase, especially for those direct lending funds that have lent with aggressive loan structures to cyclical companies. Fund raising will be difficult for these funds as investors will continue backing more conservative direct lending strategies.
Where do you see the opportunities for this asset class and in which types of companies or sectors?
We have identified a ‘sweet spot’ for direct lending at present – and for the foreseeable future – lending senior secured debt in the lower middle market in Northern European markets. The lower middle market in these geographies is less crowded versus the large cap and upper mid market space. As a result of this, as well as the banks continued dominance here, loan documentation remains robust while lending structures are conservative. In today’s interest rate environment, this segment offers compelling returns, with yields of 9%+ available for lowly levered transactions.
Northern Europe also contains the most creditor friendly jurisdictions in Europe, which coupled with the full security packages and significant equity cushions sitting behind senior secured debt, means net returns in this space should remain close to gross levels.
Our senior secured direct lending funds don’t invest in any loans to borrowers who are linked to retail, discretionary consumer spending or who have a reliance on commodities. We view these as higher risk due to the inherent cyclicality in the end markets. In the present market environment, business services, software and healthcare are attractive sectors to invest in. Borrowers that are well established; operate in sectors with high barriers to entry; and generate stable, sticky and predictable cashflows are, not surprisingly, attracting a lot of attention from lenders.
Dada la subida de los tipos de interés que hemos observado, ¿es probable que aumenten los impagos?
La clase de activos ha disfrutado de bajas tasas de impago en los últimos años y las recuperaciones han sido sólidas. Sin embargo, no podemos ignorar el hecho de que estamos invirtiendo en un entorno con varias incógnitas importantes, como unos tipos de interés “más altos durante más tiempo”, una menor confianza de los consumidores y la posibilidad de que se produzcan nuevos shocks que podrían hacer subir la inflación o tener un impacto adverso en las cadenas de suministro mundiales. En esta fase del ciclo crediticio, los fondos que han sido menos disciplinados en el análisis del crédito, o que tienen prestatarios con un apalancamiento excesivo que ahora están luchando para hacer frente a una mayor carga de intereses, se encontrarán con más dificultades en la cartera e impagos. Por lo tanto, es importante que los gestores dispongan de una sólida cartera de originación y sean muy selectivos con las empresas a las que prestan. Por este motivo, en Federated Hermes damos prioridad a la calidad de las operaciones y a la originación diferenciada basada en asociaciones bancarias para nuestra estrategia de préstamos directos.
Given the rise in interest rates we have seen, is it likely that defaults will increase?
The asset class has enjoyed low rates of default over recent years and recoveries have been strong. However, we can’t ignore the fact that we are investing in an environment with several large unknowns including ‘higher for longer’ interest rates, dampened consumer confidence and the potential for further ‘shock’ events that could drive inflation higher or have an adverse impact on global supply chains.
At this stage of the credit cycle, funds that have been less disciplined around credit analysis, or who have over-levered borrowers who are now struggling to meet an increased interest burden, will encounter more portfolio distress and defaults. It is important therefore, that managers have a strong origination pipeline and are highly selective in the companies they lend to. For this reason, at Federated Hermes, we prioritise deal quality and differentiated origination built on bank partnerships for our direct lending strategy. This gives our team a continued full pipeline of transactions in our preferred segment, whilst also providing our clients with access to deals unavailable elsewhere in the market.
Regarding refinancing processes, why do you think this will be an opportunity for the direct lending sector?
When a borrower refinances, the documentation and debt structure is re-set. In this current risk-off market, the opportunity to include superior clauses, for example two covenants instead of one and tighter restrictions around cash leakage, is higher. As well as this, the level of debt borrowers are now seeking to incur is reduced, and therefore senior secured is gaining market share from unitranche. This is due to the lower cost of senior secured loans, albeit with reduced flexibility in the loan documentation. This means that for senior secured direct lenders, there should be an increased pool of opportunities, at a lower leverage, with enhanced loan documentation and higher yields than in more recent years. This will provide strong net returns for investors, and continue to attract investors to the asset class.
What is the outlook for the direct lending sector in 2024?
Direct lending is coming of age as an asset class at a time when the macroeconomic landscape is shifting. For investors, this means the ability to source high-quality deals through differentiated means will be key to maintaining performance over the long term.
With a higher cost of debt, focus in 2024 will be on cost rather than flexibility in loan terms. This should benefit the senior secured lenders over the unitranche lenders, who have higher return targets. This means that senior secured lending will continue to gain market share over unitranche products in the European loan market. 2024 will likely be a great year for direct lenders who have been disciplined in their lending approach, and therefore not distracted with restructurings.
Deal flow is expected to pick up significantly, and has done in the first two months of 2024, as private equity primary M&A volumes pick-up. This should provide a robust pipeline of deal opportunities for direct lenders to select from.
