Its second opportunistic credit vehicle will focus on distressed credit investments. “Government support schemes, which have been propping the market up are eventually going to back away,” says Hunolt.

“There will be attractive opportunities to provide rescue and asset-backed financing transactions. In addition, banks that are well capitalised are left long with a lot of non-performing loan portfolios that will eventually be sold at attractive prices. 2021 will be a buyers’ market.”

In structured credit, the Spanish boutique invests in CLO equity through its multi-strategy fund, but Hunolt says that, now the CLO equity arbitrage is becoming attractive, it is looking to launch a dedicated product line so it can take advantage.

Arcano recently launched a CLO mezzanine fund, with Hunolt adding that, even though the tightening in sub-investment grade CLO paper was pronounced in the secondary market, double Bs still have upside.

Direct lending is another focus for Arcano. It recently held a €50 million first close on a direct lending fund, which has a €150 million target. “Private debt transactions have slowed down in 2020, but we believe 2021 will be a big year for direct lending,” Hunolt says. “Banks are retreating further and it leaves plenty of opportunities for direct lenders like us to provide that financing to companies.”

Last year was difficult for many companies in covid-affected sectors, but from an investing standpoint there have been good leading indicators showing that defaults were not going to be as high as forecast by top investment banks, Hunolt says.

In September, for instance, with the second covid wave creating further uncertainty across Europe, companies did not draw further from their revolvers, signalling they had good visibility on their business prospects: September drawdown averages were down to 40-50% versus 80-90% in March.

The speed of secondary market moves did not give an opportunity to deploy capital in Q2 but there were attractive investment opportunities in Q3 and Q4. Container shipping first lien bonds and metal and mining credits have produced steep returns in Q3, Arcano says.