IMPORTANT INFORMATION
Actively managed portfolios may fail to produce the intended results. No investment strategy can ensure a profit or eliminate the risk of loss.
Asset Backed Lending involves loans secured by assets, where the loan value is based on the value of the collateral offered. While it provides a security cushion, it carries risks such as collateral depreciation, borrower default, and potential liquidity constraints during market downturns.
Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.
Fixed income securities are subject to interest rate, inflation, credit and default risk. As interest rates rise, bond prices usually fall, and vice versa. High-yield bonds, or “junk” bonds, involve a greater risk of default and price volatility. Foreign securities, including sovereign debt, are subject to currency fluctuations, political and economic uncertainty and increased volatility and lower liquidity, all of which are magnified in emerging markets.
Private Credit refers to direct lending or debt financing outside of traditional banking, typically involving non-publicly traded companies. It may offer higher returns but comes with increased risk including limited liquidity, reliance on the borrower’s financial health, and less regulatory oversight compared to traditional bank lending.
Securitized products, such as mortgage- and asset-backed securities, are more sensitive to interest rate changes, have extension and prepayment risk, and are subject to more credit, valuation and liquidity risk than other fixed-income securities.
Asset allocation: The allocation of a portfolio between different asset classes, sectors, geographical regions, or types of security to meet specific objectives of risk, performance, or time horizon.
Attachment Point: The level at which a lender’s exposure begins in relation to the value of the collateral, often expressed as a percentage of asset value.
Cash Flow Lending: Lending based primarily on the expected cash flows of a business rather than its assets.
Collateral: An asset pledged by a borrower to secure a loan, which the lender can seize if the borrower defaults. Tangible Collateral refers to physical assets that can be seen, touched, and valued, which are pledged by a borrower to secure a loan. Examples include inventory, equipment, real estate, or other items with measurable value. These assets provide security for lenders because they can be liquidated if the borrower defaults.
Cost of capital: This can be used in various ways, but here refers to the interest rate or overall financing cost that the borrower pays for the loan.
Covenant: A condition in a loan agreement that requires the borrower to fulfil certain obligations or restricts certain activities to protect the lender. Coveted package describe a loan agreement with strict covenants and conditions that lenders impose to protect themselves.
Default: The failure of a debtor (such as a bond issuer) to pay interest or to return an original amount loaned when due.
Delayed Draw Term Loan: A delayed drawdown is a type of financing that allows a borrower to access a loan in stages over an extended period, rather than receiving the full amount at once.
Direct Lending: A form of private credit where loans are made directly to companies without intermediaries, often to middle-market firms.
Double-pledging: refers to the act of using the same asset as collateral for more than one loan or financial obligation, often without the knowledge or consent of the involved parties.
Duration measures a bond price’s sensitivity to changes in interest rates. The longer a bond’s duration, the higher its sensitivity to changes in interest rates and vice versa.
Dividend recap (dividend recapitalization): A financial transaction in which a company takes on new debt to pay a cash dividend to its shareholders, often to private equity owners.
Evergreen Fund: An investment fund structure that does not have a fixed end date and allows for continuous capital raising and reinvestment.
Institutional Allocator: An organization, such as a pension fund or endowment, that allocates capital across various asset classes to meet investment objectives.
Private equity buyout. The acquisition of a company by a private equity firm, typically using a combination of equity (capital from the private equity fund) and a significant amount of borrowed money (leverage).
Semi-liquid instrument (in private credit): An investment vehicle that offers limited liquidity compared to fully liquid assets like public equities, but more flexibility than traditional closed-end private credit funds.
Receivables: Amounts of money owed to a company by its customers for goods or services delivered but not yet paid for. They are recorded as current assets on the balance sheet and represent short-term obligations that are expected to be collected, typically within a year.
Sponsor-backed lending: A type of private credit where loans are provided to companies that are owned or supported by a private equity sponsor.
Loan-to-Value (LTV): A ratio that compares the amount of a loan to the value of the collateral securing it. Lower LTV ratios generally indicate lower risk for lenders.