Global alternative investment manager Investcorp is predicts continued strength in the global credit environment through the rest of the year, according to its recent House View report.
Driving that environment is a combination of post-pandemic recovery, banks being accommodative, capital markets being accessible to borrowers and credit fundamentals improving, the manager says.
“The overall outlook for the credit market remains favorable for the remainder of the year,” Jeremy Ghose, global head of Investcorp Credit Management, told Private Debt Investor.
“As inflation moves, and if the authorities move rates up, our investors have a natural hedge to get higher returns,” Ghose added. Returns for high yield and leveraged loans were strong during the first half of the year, Investcorp says, at 3.89 percent and 3.48 percent, respectively.
Loan demand was also a factor impacting the market and “remains robust”, Investcorp says. CLO issuance ended the first half of 2021 at a record $79 billion and is projected to reach $140 billion by the end of the year.
“In a period of rising rates and inflation, we think the senior loan product remains an attractive asset class,” Ghose said of the loan market. “We’ve seen a lot of flow into the loan space. With corporate revenue and earnings increasing, the leverage in companies has continued to decline, as post-covid recovery continues.”
And the recovery of covid has been a sharp V-shape, rather than W or U-shaped, Ghose noted. “The speed of overall recovery in the economy has really surprised most people,” he said.
Investcorp expects leveraged credit in the US, and particularly loans, will still perform well amid strong US economic growth into next year, as well as a probable increase in interest rates by central banks in the first half of 2023 if not sooner, it said.
Despite concerns over the Delta variant, Investcorp thinks the variant won’t alter economic recovery but instead increase wariness of sectors with “reversion risk” by saying they are limiting “exposure in areas with a potentially unsustainable covid-led demand bump”.
Evidence of recovery in the European credit markets can be seen in the volume of new issuance of loans, which came in at €151.5 billion in the first half of 2021, surpassing the last record year, 2007, by €11 billion, or 8 percent.
Investcorp is a global investment manager that specializes in private equity, real estate, credit, infrastructure and other assets. The manager’s credit arm, Investcorp Credit Management, has more than $14 billion in assets under management and employs 40 investment professionals.