Bryan’s Four Key Strategies
We try to avoid crowded trades and over-owned assets. At the moment, given the weight of central bank liquidity, these are large cap equities and the plain vanilla bond markets, basically assets of all types that may be too easily accessed through ETFs (exchange traded fund) and retail mutual funds.
Invest in leverage loans
We’ve now reached the limits of monetary policy. So I think the world will gravitate towards fiscal policy where government will increase their spending in key areas such as infrastructure and healthcare. As a result, they are directly competing with the private sector for financing. So we are investing in leverage loans – which companies typically use to finance mergers and acquisitions, recapitalise the balance sheet or to refinance debt.
Senior, secured, bank loans is an area we favour. The floating rate nature of the coupons reduces duration substantially; that LIBOR has been climbing animates this feature of loans. The structural seniority of claim, most of these loans are first-lien secured, provide additional safety and higher recovery values in default. While these assets are not cheap, the structural seniority is not fully priced relative to their more common senior, unsecured claims.
We see value not only in senior, floating rate loans, which are typically high-yield investments, but also in structures which offer credit enhancement and transform these claims into investment-grade securities. The investment-grade CLO market has some of the features of loans but is securitised and eligible to sit in a UCITS (Undertakings for Collective Investment in Transferable Securities) structure while benefiting from further structural seniority.
Put money in trade finance funds
We invest in trade finance funds. The trade finance opportunity exists as the banking industry consolidates, and as a consequence of scarcer capital and the need to optimise bank balance sheets. Trade finance is more efficiently housed in a non-bank structure as banks may not fully recognise the risk mitigation in the capital treatment of trade finance loans.