WATCH: The asset class’s deepest concerns revealed

Leverage, pricing, yield and documentation were among the issues haunting delegates at our New York Forum, as discussed in this two-minute video.

What keeps you awake at night? That’s the question we posed to three leading asset class professionals at our recent New York Forum. Watch this two-minute video to find out their answers.

Full transcript below.

Ted Koenig, Monroe Capital: I think that leverage levels have increased. I think purchase price multiples have increased. I think that yield is tough. I think loan documentation is not as good as it was several years ago. There’s a lot less strong remedies and covenants that the lenders have. You know, all of that keeps me up but I think the thing that I’m most concerned about is the outliers, the new entrants and some of the newer providers of capital that don’t have really a credit background. They’re taking more of a private equity approach and more of a portfolio approach where they think that one or two big winners can make up for lots of losers and it’s going to give the industry I think a broad brush paint where it’s going to take away some of the credibility that we’ve worked hard over the last 15 years to build in this industry.

Tod Trabocco, Cambridge Associates: On the direct lending side, it’s got to be the liabilities and the fundamental leverage being used, without question. I don’t know that the terms and conditions and the structure of the fund-level leverage has been tested in the last cycle like the assets have. So that’s what keeps me up.

Marc Lasry, Avenue Capital Group: I know nobody likes to hear this – probably nothing. So I apologise. I don’t really worry about things I can’t control. So if I can’t control something, what’s the point of worrying about it? I mean I can try to figure out what’s going to happen and I try to do that. You know, that’s sort of why when we’re looking at buying something and when we’re looking at investing in a certain industry, is now the right time? So what we try to do is always try to buy things that we think is a discount to the relative value. So I don’t really worry is there going to be an exogenous event. If there is, I mean then we have to deal with that at that moment in time. But I try not to worry about things I can’t control. I mean, you always take a look at something and say ‘hey what’s the risk? Do we think everything is going to stay the same? Do we think things could crack tomorrow?’ Look, at the end of the day, all we want to do is try to buy something as cheap as possible and you try to do that when people are nervous, not when things are going great. It’s hard to do that. So we try to wait and we wait for people to get nervous about the environment. You know, when the market’s down 300 points that day. That’s the time to buy.