Checking in with the private debt gatekeepers

Institutional consultants have been building private debt research practices in recent years and driving LP investments into the asset class. PDI spoke to some of the head research honchos about their views on the sector.

The influence of consultants in driving capital from institutional portfolios into new asset classes and recommending managers should not be underestimated.

Working behind the scenes recommending allocations, doing due diligence and ultimately influencing which vehicles investors choose, many consulting firms have started building private debt research practices in recent years.

PDI spoke to a selection of these advisors, from the sceptical to the enthusiastic, to gauge their views on private debt strategies.

The full story can be read here and in the November issue of Private Debt Investor, but this is a taste of what they said:

THE GLOBAL GIANTS

Stefan Hepp, chief executive, Mercer Private Markets: “What is staggering in the US is covenant-lite loans and leverage ratios that have come up quite a lot. It’s taking the same amount of risk as in 2007, and we now know that wasn’t a good idea.”

Gregg Disdale, Head of illiquid credit, Towers Watson: “There are several good reasons to be considering private debt or illiquid credit. The regulatory environment has created nice thematic tailwinds. The asset class offers an attractive illiquidity premium.”

THE SKEPTICAL ENTHUSIAST

Neil Sheth, head of alternatives research, NEPC: “What concerns me is the amount of people getting involved who don’t have track records. I understand the managers wanting to be a permanent part of investors’ allocations, but this is an opportunistic strategy. My concern is that it’s being evaluated in a different light.”

THE HEDGE FUND PRO

Patrick Adelsbach, head of credit strateiges, Aksia: “Private debt makes sense for us. It’s a similar target return as hedge funds and meeting a similar need.”

THE VETERAN

Keirsten Lawton, managing director, Cambridge Associates: “It’s clear that some firms are more embedded in the market and some are merely tourists; they’re just getting their bearings and going where others are going.”

THE NICHE PLAYER

Keith Berlin, director of global fixed income and credit, Fund Evaluation Group: “People were very excited about energy credit in the beginning of the year, but now we’re passing on a lot more stuff than we’re saying yes to. We need to see more clarity on where we are in the cycle.”

THE PENSION ADVISOR

Todd Silverman, principal, Meketa Investment Group: “Ultimately what it comes down to is evidence of strong credit underwriting capabilities. At the end of the day, these strategies have an asymmetric potential return profile and protecting the downside in many cases is the more important indicator of success.”