Alternative credit firms are having to find “more diverse ways to deploy capital” as it becomes increasingly difficult to identify high-quality assets at “the right price”.
That is according to Reckoner Capital’s co-founder and chief executive John Kim (pictured), a credit asset manager specialising in structured credit and private credit, including collateralised loan obligations (CLOs) and asset-backed securities (ABS), that was founded in October 2024.
He told Alternative Credit Investor the past few months have been “tough”.
“Everything has been bid up, both in corporate loans, private credit and syndicated, as well as in CLO liabilities and ABS,” he said. “There’s practically no credit asset we can find anywhere anymore that’s cheap.
“We’re finding it difficult to source high-quality assets at the right price. I think that’s a common problem across asset managers right now.”
He calls private credit “the hot area of the market to put new cash into”.
“A lot of that money has gone into corporate lending and you can see the effect of that – it has certainly run up prices,” he added. “There aren’t enough broadly syndicated loans for CLOs to buy.”
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However, he sees an opportunity in AAA-rated tranches of CLOs, which he says “are still cheaper than other parts of the [credit] stack”. Meanwhile, in commercial real estate, he believes “there are pockets… where we can add some value,” despite the pricing mechanisms being “a bit unstable right now, meaning it’s hard to assign value to certain properties”.
At Reckoner Capital, the focus is on originating niche assets.
“If you can originate and source your own loan opportunities, you can still get decent risk-adjusted yield for those types of opportunities,” said Kim.
“By going into private markets where there isn’t as much focus, or there are some new areas to lend into, that’s where you can still find some decent value for your investors.”
One new area for Reckoner Capital is art finance, which Kim deems “a fertile area” for expansion.
Art owners may use private financing, as opposed to going to an auction house or private bank, because “it preserves their anonymity, the works are not going up for sale, [and] it provides them [with] some short-term liquidity,” he explained.
“It’s one example of the ways that I think people in alternative credit are going to have to provide something new to their investor base,” he said, with firms having to find “more diverse ways to deploy capital in safer structures”.
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Whether high-quality assets come down in price is “hard to tell”, he added, given the “very unstable and hard to predict” macro environment.
“People are deploying assets at very high prices, and yet there’s a lot of underlying macro risk that can affect markets very quickly,” said Kim. “So, I think we’re in for an interesting year. It’s going to be, in my opinion, very volatile.”
Against this backdrop, investors need to pay attention to credit quality, according to Kim. Amid bouts of volatility, “more unstable assets” tend to get sold off first “and they widen faster, so you need to be up the stack in credit quality to potentially protect yourself,” he added.
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