Andrew Putwain: Can you introduce yourself and your organisation?
Justin McEvily: I support the product strategy and investor-facing efforts at Clear Haven. We’re a team of asset-backed and structured product investors that spent large parts of our careers investing in regulated balance sheets.
We do this across public and private markets and across the return spectrum, building strategies where we believe we can create an edge for insurance asset management clients.
In public markets, this edge involves bringing an actively managed, relative value-driven investment approach to investment-grade fixed income Separately Managed Accounts (SMAs) with a focus on Asset-Backed Securities (ABS) and Agency and Non-Agency Residential Mortgage-Backed Securities (RMBS).
Andrew: The private credit markets have received publicity recently, much of it negative. Can you give an overview of what you think the difference between public and private markets lies in?
Justin: We think there's an opportunity right now in public ABS and RMBS markets to deliver a return profile that is associated with private credit, but with the capital efficiency and the liquidity of public markets.
In terms of pros and cons between public and private credit, on the private credit side, the number one pro is that you're supposed to be able to achieve excess returns. You're supposed to get paid more than owning public risk, beyond what you can get in a beta portfolio of public corporate credit.
In addition, you should also be able to create structures with added lender control and visibility, and have fewer stakeholders to navigate around if things end up going wrong between the lender and the borrower on a given deal.
On the con side, these structures or investments are often a lot less liquid. They cost more to identify, source, and monitor over time. Lastly, they may not be diversifying exposure beyond an insurer’s core fixed income holdings, which are often times heavily weighted toward corporate bonds.
In contrast, on the public credit side, one of the big pros is around liquidity and capital efficiency. The transaction costs are lower, maintenance costs are lower, but on the con side, it may be lower yielding, and you may not have as much control around structuring the asset that you end up owning without anchoring and/or structuring a deal yourself.
But we think that if you look in the right places and spend the time and effort, you can create portfolios that capture the benefits of the excess returns with the liquidity and capital efficiency associated with public credit, finding good structures, and benefit from additional diversification away from corporate credit risk.
We're doing that for our insurance company clients by taking a highly active approach to specific parts of the ABS and RMBS markets.
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