Bespoke Credit Investing: How to Stand out in the Crowd

Focusing on the fundamentals and the ability to move fast between public and private markets are key to outperformance for Europe-focused private debt manager AlbaCore Capital Group 

How did 2020’s volatility affect the private debt market? 
Allen: Everything accelerated. There were very rapid margin calls on all markets and then a very rapid recovery. Even in the market meltdown, companies were raising billions of dollars of debt, while stimulus programs simultaneously boosted the demand side.

How do you see the private debt market in 2021?
Ammons: We'll see a lot more M&A-driven private opportunities this year. It’s a great time to sell a business and some of the companies that survived last year, but whose customers are slow to come back, will need liquidity financing. We focus on situations where we can add value through structuring, timing, execution, and thought leadership vs. situations where a grid gets sent to 20 people, which in our view as a lender, produces sub-optimal terms. 

What are the critical success factors in this market?
Allen: Making sure the size of your fund is appropriate for the market opportunity. If you're trying to be specialist, deliberate, and selective, you never want to be so big that you end up diluting those special investments and in any way having to ‘take’ the market. However, you also want to be relevant to drive those special deals. We have very sophisticated limited partners that we work with to do these large transactions, and there aren’t many funds that can do billion-euro-plus deals in Europe that remain independent. The market here is less competitive than in the US; it’s growing faster, is less commoditized, and there are more chances to do bespoke transactions.

Do higher returns always mean higher risk?
Allen: I believe the best way to outperform in credit is to focus on risk. Equity is about winners – credit is about avoiding losers. If you have market equal defaults and lose half your money on them, you are not going to outperform. It doesn’t matter if it’s first lien and only three times levered, if it defaults, you will lose money. 

Ammons: We’re a hybrid manager, with both private and liquid credit in the same fund. Moving between these opportunities over a cycle has meant we can generate significant alpha. Last year we bought secured debt at around 70 cents and a large portion of that is now at par. Add in the coupon and you’ve made around 1.5x – an entire private debt fund money multiple in six months. Combining the two strategies is a really important part of our success. 

About AlbaCore Capital Group
AlbaCore Capital is one of Europe’s leading specialist credit investors focusing on public and private markets. The senior team has invested with this hybrid strategy for over a decade. Founded in 2016, AlbaCore has invested over $16bn across 280 companies. The credit selection is based on fundamental research with a focus on capital preservation, ESG, and risk-adjusted returns.