Head of Portfolio Solutions at Cliffwater ๐ | RIA Intel's 2023 CIO of the Year ๐| The Allocator's Edge ๐ | Bps & Pieces ๐จ๐ปโ๐ป | Pro Wrestling Aficionado ๐คผ
The Paper Trail: Wag the Dog ๐ถ
Welcome to The Paper Trail, a monthly curation of the best investment research I can find.
Mayโs edition features:
๐บ๏ธ Global diversification in a deglobalizing world
๐๏ธ Private equity's distribution drought
๐ The economic life of AI hardware
๐ Redemption activity in semi-liquid PC funds
โ๏ธ AI picks-and-shovels in emerging markets
๐ Looking for quality in GP-led secondaries
๐ช Geopolitical risk and managed futures
โ๏ธ Alpha and tax-aware long-short strategies
๐ฐ Moats and value traps in software stocks
๐ก๏ธ Inflation and stock-bond correlation
๐ฅง TPA and diversifying beyond the pie chart
๐ Luck and skill in direct lending
๐ฅ The road to a trillion dollar secondary market
๐ญ Real assets and the physical economy
๐ช Investing in the rearview mirror
(๐ in replies)
The Paper Trail: Simple Arithmetic ๐งฎ
Welcome to The Paper Trail, a monthly curation of the best investment research I can find.
Aprilโs edition features:
โ Direct lending return drivers
โ Private credit loss math (frequency vs. severity)
๐ Rethinking the endowment model
โ๏ธ The case for municipal bonds
๐ฅท Hidden costs of passive investing
๐ฏ True alpha in macro strategies
โก Infrastructure as a core allocation
๐ก๏ธ Private credit and financial stability
๐ง Quant crowding concerns
๐ฐ Market reactions to geopolitical shocks
๐ Equity portfolio construction in a changing world
โ The duration of competitive advantages
โ Private assets and liquidity constraints
๐๏ธ Sports franchises as an asset class
๐ Realizations in GP stakes
(๐ in replies)
Welcome to The Paper Trail, a monthly curation of the best investment research I can find.
Marchโs edition features:
๐ช Emerging market strength
๐งฐ Hedge fund portfolio utility
๐ฐ The price of having fun with growth stocks
๐๏ธ Private real estate consolidation
๐๏ธ Investing in U.S. affordable housing
๐งฉ LP financing solutions
๐ญ Changes in industry composition
๐ The HALO framework
๐ท๏ธ Incentive fees in evergreen funds
๐ง Zombie funds in PE
๐ฏ A century of stock market wealth creation
๐ก Integrating value, quality, and momentum signals
๐งฎ Pre-tax alpha in tax-aware long-short strategies
๐ฅ Layering diversification on top of equities
๐น Opportunistic credit and the efficient frontier
(๐ in replies)
@BackupHangman A third match w/ Roman would have only made sense w/ Cody going over again and turning heel in the process. Not other outcome would have benefitted either guy.
Ok, Iโll bite.
1. Not sure why it's necessary to impugn those with โletters behind their nameโ โ who actually bear the great responsibility of managing other peopleโs money โ as if disagreement with your points below somehow violates their duty as charterholders.
2. Allocations to private credit in the wealth channel typically range between 5-10% of the overall portfolio. Not sure itโs the best and highest use of an advisorโs time attempting to arb BDC discounts for a relatively modest portion of their clientsโ assets.
3. To that point, many will avoid the trade you describe now for the same reason they avoided listed BDCs in the first place (when discounts were narrower) โ they have independently reached the conclusion they prefer other structures for obtaining their desired exposure to the asset class that can provide lower fees, less leverage, and more diversification.
4. I would argue the primary portfolio objective for private credit investors is high current income, not capital appreciation. For long-term strategic allocators, why introduce the brain damage of continuously rotating between listed BDC and evergreen vehicles based on sentiment-driven discount dynamics? Successful outcomes can be achieved w/o playing that game.
5. Lastly, โdefaults existingโ โ problems in private credit. Defaults have averaged ~2% over the last 20+ years. With ~10k middle market borrowers and another 1.4k BSL credits, one should expect more than 200 defaults a year. Not every failed borrower is a harbinger of the next GFC, no matter how much the anti-PC crowd desperately wants it to be.
Anyone with โ,CFAโ or โ,CAIAโ behind the name, whoโs twisting themselves into a pretzel arguing there are no problems in private credit should:
1. Disclose how much of their clientsโ money is in PC evergreen vehicles
2. Exit them at NAV and buy shares of the public BDC
No?
@davis_greene@EricBalchunas Great points, don't disagree. Was more referring to reducing portfolio level impact of a failed loan, but all are important to successful outcomes in the asset class