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News Investor’s Corner
‘There’s too many people chasing not enough assets’
by Shant Fabricatorian
Creditflux: What investments do you oversee in your role as an executive director and investment committee member at Crystal Fund?
Pierre-Olivier Fortin: Crystal Fund is a relatively small fund and we invest in US and European CLO tranches. Historically the fund invested more in equity, before moving up [the capital structure] to triple Bs. A feature of the fund is that it’s an investor-driven firm – we are all personally invested. I’m an investment manager, so I make purchase and sale decisions. I’m leaning more towards risk management, so I’m in charge of monitoring the risk. When I started my career at JPMorgan, I was a quant, so I’m also involved in the processes and technology side.
CF: Over the course of this year, we’ve seen consistent performance from the CLO market. Are there any risk factors you are particularly concerned about at the moment?
PF: The way we describe the current market is very flat. The underlying risk hasn’t gone away, but we don’t see it in the pricing. That’s my main concern as a risk manager. In terms of the structural basis, I don’t see [that] going away any time soon. There’s too many people chasing not enough assets, flattening the structure. Unless there’s a significant amount of loans that arrive to the market – and everybody’s been expecting for two or three years the M&A market to finally deliver on that, and it hasn’t – the demand side doesn’t change.
Infra, mostly because of changes in insurance regulation in Europe, got even more interested. First they bought the triple A assets, and it works. When are an insurer starts to buy CLOs, you put a guy in charge and they say, we could buy some small shares of double Bs. So then suddenly, they got much more involved in the market. It’s an additional buyer and keeps compressing the market. So is it going to change? I don’t think so.
AI has removed the scale disadvantage of a small shop
Dr Pierre-Olivier Fortin
Executive director
Crystal Fund
CF: Between European and US CLOs, where do you see relative value at the moment?
PF: I think that tier-1 is too expensive, so I stay away from it. In tier-2, there’s enough dispersion, so there we can still find interesting paper. We are heavily interested in double Bs and single Bs.
CF: AI has been a dominant subject in investment circles over the past 18 months. How heavily invested are you in the ‘AI trade’?
PF: There’s two sides to the AI story. There’s the market side and there’s what we do with AI as an investment firm. I’m going to start with the second one. I used to be a bank quant, managing a group of developers. I was a professional coder; I can review it to a good standard. Modern AI tools allow you to create code extremely fast. So what we have done has been to pick processes that were labour-intensive and time-consuming. I wrote, with the help of AI, some Python code that does what used to take us half a day, in five minutes. So the story for us is an efficiency issue. We would have had to have 10 staff working for me to have this type of software. Now that we have that, we can spend all our time choosing what name is good, what name is bad, which one we need to rotate. So we are more efficient in terms of producing alpha.
For us, AI has removed the scale disadvantage of being a small shop. I don’t have, and never have had, a 10-person IT team. The big players competing with me had. I was at a disadvantage. Now that I don’t need it, they are at a disadvantage. And because we don’t need headcount in many other departments, we have increased our headcount where people are needed, typically the investment management side or the marketing side.
On the market side, some software companies are really hatd hit by AI. That’s something to recognise. But some of them are really not impacted by AI at all. Real AI impact is not easy to categorise and has to be done on a name-by-name basis. We do listen to managers who recognise this.
My main concern at the moment is that many non-technology companies are much more in danger than many software companies. The focus on software is hiding the names AI is really hurting.
