DNY59
Transcript
Daniel J. Ivascyn, Group Chief Investment Officer: One of the most common questions we’ve been getting recently is regarding corporate credit more broadly, questions around the relative valuations of public and private credit.
Anytime you have a significant shift in investor thinking regarding economic risks or credit risks, we’ve really seen once again, the public markets lead the overall credit markets lower. So when you look today at opportunities in the public market versus appropriate private market comps, you’re seeing significantly greater yields for similar risk within the public market.
And what that typically means is that over the course of the next few quarters, as some of the lagging marks in the private segment of the opportunity set adjust, you could see convergence in that direction or you’ll see public markets regain a bid and tighten back towards the private counterparts that look quite similar in terms of overall risk. But this is an environment today where, due to market segmentation, many strategies targeting private credit opportunities in a very narrow sense, you continue to see these markets operate at very, very different levels for relative value perspective.
Again, it’s fairly extreme today during other periods in history, but also consistent with how markets tend to perform when you have, again, a big shift in overall market sentiment.
And then in terms of the philosophy for investors within these markets, we see opportunity today within the public space, both in the form of higher yields, in the ability to drive terms, better covenants.
So we think that investors should begin to be much more active within that public opportunity set, even consider shifting some assets from private-oriented strategies into this area that has lagged, and lagged quite significantly. But also investors should be preparing for what we think is a multi-year opportunity to take advantage of dislocation within the corporate credit opportunity set more broadly.
We don’t need a crisis for there to be opportunity. It’s simply the response to significantly weakening economic growth and the prospect for even a slight-to-moderate recession. So we think, again, react quickly to this significant jolt in valuation in the public space, be much more patient and careful allocating to private opportunities today, especially at significant yield gives versus the public markets, but also prepare and begin to focus more on what we think is going to be a significant opportunity within both public and private credit, with private opportunities inevitably lagging opportunities within the public space as they typically do during similar economic environments.
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