Apex Capital Introduction Services hosted an Alternative Emerging Manager breakfast with interesting contributions from both managers and investors.
Points of discussion for Serone:
-Risks and problems seemingly everywhere in market
-Global shocks causing correlations across markets
-Where do we see major risks to our strategy coming from?
-US vs European credit markets?
-Lot of noise at present; oil, bank stocks, Central Bank divergence, EM, Zika virus, Brexit, refugee crisis etc
-Our strategy is designed to perform in all environments
-Serone simplifies its risk profile down
-We take a top down view; currently positive on core European corporate risk, then express our view through structured credit securities
-Securities we buy give a very high level of diversity; by geography, vintage, sectors etc
-Then put on trades in a way that gives us multiple drivers of return e.g. some of our positions will perform better in a stressed environment despite being long credit
-Ultimately question for us is whether the underlying borrowers from our securities will repay their debts
-Given that these are firms that are issuing first lien, senior secured loans to core European corporates with typically manageable leverage ratios and a tailwind from the ECB QE we do not foresee a sharp increase in default rates in the near term
-US loans default rate ~2% at end of 2015
-We expect increase in 2016, even if commodity prices rise 20% from here
-Too much focus has been on commodities however, and we think there could be some surprises away from that
-US credit markets open to more aggressive LBOs and leverage for a longer period
-Low wage growth, consumers still talking time to spend windfall from lower input prices, disruption all likely to increase surprises
-European credit markets have been more conservative
-ECB QE also helping to provide additional support