Short-term US and Canadian government debt
4.5%-5.0%+ yields to maturity for US and Canadian Treasury bonds (for short maturities of up to two years)
Private Credit (offering potential returns from low double-digits to mid-to-high teens)
Demand for flexible capital solutions (junior credit) is increasing sharply as sponsors are increasingly dependent on M&A acquisitions to drive portfolio company growth and cannot add senior debt (either syndicated or through private direct lenders) to their capitalization stacks. This junior capital can provide 1-2x turns of additional leverage offering mid-teens IRRs through offering flexible payment structures (mix of cash and PIK interest). Additionally, these capital solutions can demand stronger protections in terms of financial and maintenance covenants.
Asset-backed credit solutions are seeing increased demand as companies seeking liquidity are pledging high-quality sources of collateral such as receivables, inventory, and certain fixed assets.
Opportunistic credit funds should benefit from a wider range of higher-returning potential investments including a) dislocated publicly-traded bonds and loans and b) opportunities to provide bespoke bi-laterally negotiated credit solutions such as rescue financing or balance sheet restructuring to corporations.
Venture debt (loans to Venture-backed companies) is increasingly interesting, especially post the SVB collapse. The borrower universe has expanded (larger, more-established borrowers), expected yields have increased, and terms have become tighter and stricter. The loans also have an attractive amortization component which leads to an attractive de-risking element.
Private Equity Secondaries
Activity in the secondary market has picked up significantly during H1 driven by institutions selling existing LP positions either to a) bring allocations to PE more inline with their targeted ranges or b) facing liquidity issues as distributions are delayed given current market conditions while capital calls are continuing.
Deal volume increased substantially vs H1 2022 and discounts have widened significantly for LP transactions with average deals done in the low-to-mid 80% range of stated NAV vs. low-to-mid-90%s last year.
For the first time in several years, modest discounts are even available for best-in-class GP-led continuation vehicle (single asset) deals.