The time is now for Emerging Market Illiquid Credit
As an enabler of ideas, growing and adapting to changing client needs and markets, we offer our emerging market illiquid credit strategy to capture value in what we believe is an underpenetrated market..
Why now?
- Changes in the banking industry following the financial crisis have meant that banks are under regulatory and capital constraints
- In EM, approximately 90% of corporates funding needs come from the banking sector
- This lack of capital markets alternatives for borrowers and low demand for bank loan paper pave the way for investors to focus on lending to high quality corporates.
Key benefits
- Potential for risk-adjusted returns for the same risk when compared with public markets
- Attractive income potential
- Smoother volatility profile given the "buy-and-hold" strategy
- Deep opportunity set given current market dislocation
- Secure documentation for EMD corporates (covenants, asset disposal restrictions, etc.) when compared to developed markets (Cov-Lite)
Watch time: 4 minutes
Our approach
Investment strategy
Target a broad set of opportunities using a rigorous investment process
- Focus mainly on senior instruments
- Fully drawn commitments and a diverse syndicate of lenders/holders
- Proprietary origination channels, leveraging long-standing relationships
- Extensive due diligence using multiple sources
- Focus on full transfer and title ownership
- Leveraging the wider EM team's market knowledge of larger Global EM countries
- Industry agnostic with a focus on companies with hard assets and cash flow generative businesses across a wide range of industries
- Investment Size
- $15-25m ticket size
- 20-25 investments
- 2-3 years average holding period
Why BlueBay Fixed Income?
Over the last four years, we have built a tried-and-tested framework for investing in EM private credit based on several key underlying principles, with fundamental analysis as the key starting point.
- In-depth due diligence by specialists: financial and commercial due diligence leveraging a deep bench of sectors and macro specialists within the team; analysis includes testing the range of potential stress scenarios with a focus on cashflow generation, debt sustainability, leverage trends, refinancing risks and FX risk. Technical and ESG factors are integrated within the decision-making process.
- Active monitoring and engagement: ongoing monitoring of the borrower’s financial conditions and the respective local markets; use of lender information, disclosure rights and engagement with company’s management to ensure on-going operational and financial performance remain consistent with initial underwriting thesis.
- Strong and credible sourcing network: proprietary sourcing from direct, long-term relationships, which materially de-risks the investment process and provides a constant flow of potential investments across geographies and sectors.
- Seamless execution resources: working within a purpose-built platform that incorporates robust risk management, operations and compliance.
- Familiarity with legal architectures: focusing on downside protection from a legal perspective, drawing on restructuring expertise and in-depth knowledge of local bankruptcy laws to allow for more accurate analysis of enforceability of creditors’ rights and monetisation of collateral in a worst-case scenario.