Frederic Nadal, CEO of MV Credit, gave his views on private credit markets at the SuperReturn International Conference, which took place June 14-17 in Berlin.
Nadal was a panellist at a key conference event, entitled: “The next phase for private credit markets as Covid-related headwinds dissipate in 2022”. The panel was asked to predict how private debt will perform as uncertainty clouds the economic outlook and concerns about inflation grow. It was also asked to offer views on the best opportunities in the private debt market today and over the longer term.
MV Credit, an affiliate of Natixis Investment Managers, was among the first private credit firms in Europe, established in 2000, and now offers three complementary strategies in direct lending, hybrid strategies and CLOs.
Despite market challenges, Nadal says value can still be unearthed. “We find better margins and pricing in deals involving mid-cap companies, which is the space we operate in,” Nadal says.
Another way to achieve attractive risk-adjusted returns is through bilateral deals, Nadal says. “Speed of delivery and convenience can provide a premium. Given our experience in this market, we are able to assess and execute transactions rapidly, so the sponsor does not need to syndicate the deal and can just move on to the next deal. That is enticing for many.”
Inflation is another danger to fixed income investors. Private debt portfolios have built-in protection since they have floating rate coupons which rise in line with rising rates. This may increase the likelihood of defaults, Nadal believes. “That risk can only be mitigated through great credit selection and a commitment to downside protection,” says Nadal. For that reason, MV Credit has increased expected raw material, labour and interest rate costs in its models for prospective portfolio companies, when conducting stress scenarios.
In addition, ESG is a way to enhance credit quality within a loan portfolio. MV Credit differs from its peers in that it ties its ESG performance directly to compensation.
In an environment of global uncertainty and rising rates, the protections offered to investors in private debt remain attractive. We expect the asset class to continue to grow from strength to strength with additional capital inflows, that firmly establish it as a mainstream investment within a traditional investment porfolio.
For Further Reading:
- Senior Loans Investors Can Rise to the Challenge of Competition
- MV Credit hires new head for its autonomous ESG function
- MV Credit Wins Best Subordinated Debt Investor for the 13th Year Running
- MV Credit to Open Paris Office as it Expands with New Private Debt Team
- Private Debt is Booming
- Private Debt Investing with ESG Criteria
- MV Credit provides ESG-linked financing for buyout
- ESG in private assets
- Private Debt Has Unique Opportunity to Drive the ESG Agenda
- MV Credit Invests in Deal for US Ingredients Distributor
- MV Credit Awarded CarbonNeutral® Company Certification
- MV Credit Gets Straight “A”s in UNPRI Assessment
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