Which investor segments are most engaged in private credit today?
Jason Goss: It’s not just the broadly diversified sponsors now: it would also be what we'd look at as our alternative credit firms.
The insurance space is one that we're quite focused on, because companies managing insurance-based capital are very active in looking to get a more diversified investment base within their portfolios.
For sponsors, owning insurance companies is a good way to have some cyclical fortitude. It also brings long-term, recurring management fees and the ability to invest in more illiquid and longer-term assets.
Similarly, we see pension plans behaving more like sponsors and competing for private assets. And there's a big focus on growing alternative sleeves within our traditional asset managers, who are getting a lot of mandates from managing things like insurance money.
"The insurance space is one that we're quite focused on, because companies managing insurance-based capital are very active in looking to get a more diversified investment base within their portfolios."
Jason Goss, Head of European Solutions and Structured Products
How are investors’ goals and behaviors shaping the market?
Goss: Insurance companies and pension plans are looking for long-duration matching assets that are in appropriate format.
Are clients being paid enough in the private markets for looking at less liquid assets or more concentrated positions? It will be interesting to see how that ‘illiquidity premium’ evolves over time, now that we have more players looking for it, and how opportunities for private investments persist, given the convergence of public and private markets.
What is RBC’s approach to facilitating growth and optimizing client access in this market?
Eric Wise: Over the last several years we’ve transformed the way we coordinate our capabilities, with a focus on using our balance sheet and then distributing risk to other parts of the market.
Whether it’s accessing private placement markets with insurance carriers, tapping public markets through securitization, or executing risk transfer and syndication of existing loan exposures, I think we’ve done a strong job originating, distributing, and selectively holding risk where we see the potential for outsized client returns on the use of our balance sheet.
Goss: One of the things we are currently spending a lot of time on is getting appropriate opportunities in front of clients at the right time, making sure that they don’t get pigeonholed into one corner of the market, and understand other opportunities and how can they access different asset pools.
Wise: As our clients are now looking to deploy capital into a broader set of asset classes with a more diverse set of goals and priorities, the capabilities that they're asking us to deliver are being co-mingled.
We recently participated as the acquisition financing provider for a firm that wanted to buy a strip of GP stakes. That transaction gave rise to a number of considerations: contingent funding in the future, cash flow analysis, and reliance on a counterparty structure similar to a derivative.
Our investment banking team was able to secure a mandate and identify what success looked like. They brought in the alternate finance team to deliver an asset-based financing facility, and our corporate banking team to develop a customized capital call facility.
Where RBC will have an ability to outperform is through identifying opportunities that no one part of the firm can deliver, but across the firm, we have the capability of organizing those pieces into a comprehensive solution.
"As our clients are now looking to deploy capital into a broader set of asset classes with a more diverse set of goals and priorities, the capabilities that they're asking us to deliver are being co-mingled."
Eric Wise, Head of Alternate Finance
What’s RBC’s view on the recent wave of strategic partnerships between banks and asset managers?
Goss: If we have a borrowing client and we're looking to match it up with an investor, the optimal investor may be a Canadian pension plan, or a UK insurance company, or an alternative sleeve in Australia.
We want to make sure we’re positioning themselves to be the counterparty of choice that’s going to get the best execution for all our clients. A strategic one-channel partnership may or may not be optimal for both our borrowing and our investor clients.
What trends are likely to shape the market in future, and how are you anticipating their impact?
Goss: You see hybrid ETFs now, CLO ETFs, a number of delivery mechanisms to access a broader investor base than the larger institutional investor type.
But the private wealth markets are still underinvested in private capital. What would be an optimum investment vehicle to service the private wealth channels? That's one of the areas that we'd be thinking a lot about in terms of how we help our clients in the future.
Wise: The private markets tend to be more clubby, less diversified, less syndicated across multiple parties, and certainly less visible. How do we as a firm win mandates when there's fewer entities that are going to play a significant role in those transactions?
We will win business because of two words: cadence and content – being in front of our clients on a very regular basis, with content that is interesting and will help them succeed with their strategy and their priorities.
"You see hybrid ETFs now, CLO ETFs, a number of delivery mechanisms to access a broader investor base than the larger institutional investor type."
Jason Goss, Head of European Solutions and Structured Products
