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News Investor’s Corner
‘Opportunities will present themselves’
by Lisa Lee
Lisa Lee: We are meeting at SuperReturn in Berlin. What’s the mood and how are you finding this conference?
Kathy Sutherland: One of the big trends of SuperReturn in general has been the shift in focus to credit from equity. This used to be an equity conference; now it is dominated by credit. There is a focus on investors’ growing allocation to opportunistic credit and a greater appreciation of blending strategies between public and private, because of the uncertainty that exists in this environment.
LL: GoldenTree does both public and private credit. Which do you think is the more interesting investment right now?
KS: This is an environment where there are opportunities across both markets. More recently, given the dislocation, there have been greater opportunities on the public side. That being said, we did some interesting private structured credit deals in April, which priced around 200bps wider than where similar transactions were pricing prior to the market volatility. If we remain vigilant and nimble, opportunities will present themselves. Importantly, many of our private opportunities are created via our public market investing experience as these markets continue to converge.
We spend years with investors, educating them on the value a CLO can create
Kathy Sutherland
CEO
GoldenTree
LL: GoldenTree won three of the top awards at our CLO Symposium last month, including best private closed-end CLO fund. How does that fund play into your CLO strategy?
KS: I’m particularly excited about that because we’ve been issuing CLOs for 25 years — and have managed funds that capture the return of GoldenTree CLOs for 10 years.
There’s been a real shift in the market from our perspective on how to optimise CLO returns through execution. A key driver is GoldenTree taking on additional responsibilities that historically were borne by banks.
In the old days, you did three things at once: bought the assets, priced the investment-grade senior debt, and priced the junior mezz and debt — all within a relatively short timeframe. Now, our fund structure allows us to do these things when we want. Often, we do them at different times, because the optimal point to execute each component is different.
What’s quite interesting too from my perspective — and I started in the CLO market in 1996 — is that the fund approach has allowed more diverse capital to participate in the CLO market. Almost 95% of investors in our CLO funds that focus on equity had not historically bought a CLO equity tranche.
We spend years with investors, educating them on the value that CLO equity can create in a portfolio. These investors are global, and include pensions, sovereign wealth funds, foundations — they don’t want to be taking 30 calls a year to underwrite a single CLO equity investment. They want to think about how a long-term allocation to CLO equity can complement and be accretive to their fixed income, alternative or equity portfolio.
LL: As a credit investor, is there anything you’re particularly worried about?
KS: Our big concern is that we’ve seen growth rates come down, but spreads are actually tighter than levels prior to April. One of those is incorrect: either economists’ expectations for lower growth are wrong, or credit spreads are too tight.
