To successfully underwrite credit co-investments, we believe it takes years of experience and a high degree of skill in direct investing to avoid adverse selection. We also feel that a trust-but-verify approach is best – one that includes independent diligence while leveraging a co-investment partner’s work.
Because of the broad range of investment securities, types, and regions involved, implementing credit co-investments can be challenging. It’s our view that an investor should have a full suite of internalized capabilities, which includes prime brokerage relationships, ISDAs, traders, legal, compliance, tax, and other specialties that, when kept in-house, can significantly increase the speed of deal execution that is often critical to accessing an opportunity.
Last, portfolio management of credit co-investments to meet an investor’s optimal risk/return preferences is vital. We believe it takes requisite levels of skill and experience to create a diversified portfolio that properly manages various risk factors and incorporates hedging components where needed.