Alternative Income in a Zero Interest Rate World | #𝐒𝐀𝐋𝐓𝐍𝐘 | Summary and Q&A

TL;DR

Experts discuss alternative income opportunities in a low interest rate environment, highlighting segments of the credit market that offer higher yields without excessive risk or leverage.

Key Insights

• 🖕 Direct lending to middle-market companies provides attractive risk-adjusted returns and fills the gap left by traditional lenders.
• 💳 The structured credit market offers opportunities in various sectors, including residential mortgages, student loans, and credit card lending.
• 🧑‍🏭 Relationships, proprietary origination, specialization, and asset selection are critical factors in achieving success in alternative income strategies.
• 😘 The low yield environment and regulatory constraints create pockets of opportunity for specialist investors in credit markets.
• 🦔 Non-traditional assets, such as real estate, offer an inflation hedge and attractive returns compared to traditional corporate bonds.
• ❓ COVID-19 highlighted the importance of conservative underwriting practices and well-managed liability structures in alternative income strategies.
• 💳 The competition has decreased in certain segments of the credit market, providing potential advantages for specialized investment firms.

Transcript

hi everybody thanks uh thanks so much for uh for joining us and uh and on behalf of skybridge um thanks so much uh for for being here at this very special salt uh in new york um i have a uh i have a great panel today we're talking about uh the title is alternative income in a zero interest rate world but it's gonna be a little bit you know uh uh br... Read More

Questions & Answers

Q: How does direct lending differ from traditional bank lending?

Direct lenders focus on providing cash flow lending to small companies that are unable to access credit from banks. They offer senior secured loans with typically higher yields and more flexibility than traditional lenders.

Q: Why would a well-established company pay a higher yield to borrow from a direct lender?

Middle-market companies often turn to direct lenders because they are not able to access the bond market. Direct lenders provide a one-stop financing solution, speed of execution, and the ability to work through restructurings and other challenges with borrowers.

Q: What are the advantages of investing in structured credit markets?

Structured credit markets, such as residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and asset-backed securities (ABS), offer opportunities for yield and total return. These markets are dislocated at times, providing potential for outsized returns.

Q: How do the panelists source investment opportunities in their respective markets?

Monroe Capital focuses on proprietary origination, leveraging a team of loan originators to identify unique lending opportunities. Exonic Capital specializes in partnerships with government entities like Freddie Mac, participating in risk-sharing programs in the small balance lending market. Angelo Gordon capitalizes on market inefficiencies and focuses on segments where the government or large banks are less active.

Summary & Key Takeaways

• The panelists discuss their firms and investment strategies, focusing on structured credit and direct lending to middle-market companies.

• Direct lending offers attractive risk-adjusted returns for small companies that are underserved by traditional lenders.

• The structured credit market provides opportunities in areas such as residential mortgage finance, non-qualified mortgages, student loans, and credit card lending.