Gareth Henry was recently interviewed to discuss the potential of private credit investment for the Daily Forex Report in Clara Davis’ article “An Overview of Private Credit with Gareth Henry.” The article reveals that the course of the private credit investing strategy must be paired with a deep understanding of the economic cycle. Those who focus on distressed credit will look for investment opportunities during a downturn in the economy. Distressed credit investments are focused on the strategy that buys the credit of firms who have negative credit. When mid-sized or large companies default on their loans or seek to restructure their credit, they can experience negative credit.
Fund managers who are interested in distressed credit focus on buying the debt at a discounted rate either directly from the owners or from the public. When they buy the debt, these fund managers can use a variety of different strategies to make sure their returns are as high as possible. Some people who invest in this kind of private credit investment will seek to make their returns higher by using their position as a debtholder to negotiate higher rates from the borrower. Others might use a more active approach to the investment by looking at refinancing or improving the position of the business. Many managers will need to do extensive research into the companies to make sure there are no economic or legal issues with the companies who have distressed credit.
Gareth Henry suggests that it might be wise to find returns based on debt security created at a steep discount. They might also use their leverage to negotiate while creating value. Most returns in distressed credit can be around the mid-teens or even higher. However, investing in distressed credit does have some risk. One of the risks involved in this kind of investment strategy is the need to use many different entities to restructure the current position of the business. This may cause the beneficial resolution to become complicated because of how many parties are involved. Gareth Henry has a background in private credit investments and more generalized alternative investment strategies.