In this second episode, Franklin Templeton Institute’s Tony Davidow discusses opportunities in alternative credit strategies with Richard Byrne from Benefit Street Partners.
In our second episode of the Alternative Allocations podcast series, I was joined by Rich Byrne, President of Benefit Street Partners. Rich and I explored the opportunities in alternative credit strategies. Specifically, we examined the attractiveness of private credit, distressed debt and real estate debt in today’s market environment.
We began by discussing the challenging economic backdrop and the impact of the collapse of Silicon Valley Bank (SVB). Rich discussed the difference in managing portfolios that are fully invested versus putting new capital to work today: “Two things can exist at the same time. There’s going to be a big challenge for existing portfolios, but at the same time, we think for new capital, there’s going to be one of the best investment opportunities we’ve seen, maybe even since the global financial crisis.”
Rich discussed his paper released earlier this year, “Private debt market outlook: The opportunity of a lifetime?,” where he uses the Titanic as a metaphor for financial markets. By the time the captain saw the tip of the iceberg, it was already too late for the ill-fated ship. The iceberg in the financial markets was the rising interest-rate environment. Interest rates rose from near zero to five percent in a matter of months, which had a ripple effect throughout the financial services industry.
Earlier this year, we witnessed the collapse of SVB, and the US Federal Reserve stepping in to provide stability to other troubled banks. Rich noted, “Banks, in particular, got caught up in that and we can talk about its impact on real estate and a lot of other asset classes. And the banks are not lending. In fact, the banks are going to have a whole host of portfolio problems, which could create second order buying opportunities for firms like us.”
Since the collapse of SVB, we have seen tighter credit conditions and concerns about contagions, especially in the real estate sector. After the global financial crisis (GFC), we experienced similar tight lending conditions, which have spurred the growth of the private credit market. Banks weren’t willing to lend, so private credit managers stepped in to fill the void.
Seasoned alternative managers, putting capital to work in today’s environment, may be able to negotiate favorable terms at attractive valuations. The bottom line is disruption often creates opportunities for those who are able seize the opportunity.
To learn more about opportunities in alternative credit, and to listen to the podcast, please visit alternativeallocationspodcast.com. Also, one article of interest is my previous private credit article: “Alts Angle: Disruption creates opportunities.”
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Equity securities are subject to price fluctuation and possible loss of principal. Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
Alternative strategies may be exposed to potentially significant fluctuations in value.
Real estate investment trusts (REITs) are closely linked to the performance of the real estate markets. REITs are subject to illiquidity, credit and interest-rate risks, and risks associated with small- and mid-cap investments.
Privately held companies present certain challenges and involve incremental risks as opposed to investments in public companies, such as dealing with the lack of available information about these companies as well as their general lack of liquidity.
Active management does not ensure gains or protect against market declines.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.
IMPORTANT LEGAL INFORMATION
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.
Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
Issued in the U.S. by Franklin Distributors, LLC, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com – Franklin Distributors, LLC, member FINRA/SIPC, is the principal distributor of Franklin Templeton U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our most recent white papers.
© Franklin Templeton Investments
Read more commentaries by Franklin Templeton Investments