MidOcean’s new CIO: No ‘material near-term’ credit cycle concerns

Dana Carey joined has joined MidOcean Credit Partners as its new chief investment officer. Previously, he served as co-head of performing credit at Apollo Global Management, a firm he joined when it acquired Stone Tower Capital, where he was a partner and co-head of special situations. Private Debt Investor caught up him to discuss the outlook for his new firm’s credit strategies and the broader investment landscape.

What will be your first as the new credit business CIO?

My top goal is to continue to deliver great products and customer service to our clients. I think there are a lot of growth opportunities if we can keep doing that. What we want to do is provide our clients with products that they want and need.

MidOcean runs four credit strategies: opportunistic credit, absolute return credit, structured credit and tactical credit. Which of these are you seeing the best deployment opportunities in?

Generally, we’re seeing good investment opportunities across all our businesses. There are always air pockets in the market that provide opportunity: for example, in off-the-run – smaller capital structures or sectors facing headwinds, like healthcare. Those types of opportunities are more relevant to the opportunistic or tactical credit strategies. The deployment form tactical credit is more episodic because we are targeting higher returns.

In which of these strategies are you seeing most investor interest?

Allocators are focused on multi-asset credit and drawdown strategies, which allow managers to deploy capital in the market as we see fit. Customized accounts are also popular. While hedge funds are somewhat less popular today, I do think that hedged strategies in general will regain popularity if they do perform well, especially in down markets.

CLOs have received a lot of scrutiny and criticism in recent months. Have structured credit markets been impacted by that?

The market has not been affected by the noise; if you look at the loan market it has grown significantly in the past couple years. The CLO market, which is north of $600 billion, is really stable. There is demand from insurance companies and banks. Also, the market has expanded from being just broadly syndicated CLOs to include middle market CLOs as well as opportunistic CLOs, which are less levered.

Is there any reason for concern?

I do not see a reason for significant or outsized concern. Like with most asset classes, if there is a downturn in the economy, I think there will be mark-to-market consequences [to CLOs], but I think the CLO structures will hold up.

Where are we in the credit cycle right now?

The short answer is I don’t think we see any material near-term concerns. It’s been a particularly strong year for investment grade and high yield markets. They have benefited from lower interest rate expectations. Loan markets have fared well, but less well than investment grade and high yield because of lower interest rate expectations. If rates stay low, it should provide a good backdrop for the markets.