by Andrés Ramos, Content Marketing Specialist – eVestment Private Markets
The COVID-19 pandemic has roiled global capital markets across the asset classes and industry sectors. As many investors continue to assess the damage done, others are already going on the offensive, looking for opportunities to invest in the midst of severe market dislocation.
Fixed income, and by extension, private credit, has been one area where LP investors have poured in capital. As we highlighted in an April blog post, firms like Apollo and KKR have launched funds to offer liquidity to stressed companies.
Moving into May, another type of credit opportunity began to appear in consultant presentation decks sourced from eVestment’s Market Lens platform, those related to the Term Asset‐backed Loan Facility, or “TALF” program.
Launched by the Federal Reserve in response to the economic impact of the COVID-19 pandemic, the TALF program issues loans to businesses equal to the value of the assets collateralizing them, less a “haircut” – or the percent of the loan funded by private asset managers. For asset managers who fund the haircut, the Fed offers the entirety of yield generated from loan, less interest and fees on the Fed’s share of the loan. The initial commitment from the Fed essentially acts as leverage for the investing asset manager’s capital. In return, the asset manager accepts the risk of the loan in a first loss position with no claim to the loan’s collateral.
The example below was part of a May 11th presentation from consultant Segal Marco to public plan investor Fairfax County Educational and illustrates how a successful TALF loan delivers a healthy return to the asset manager.
For LPs, consultant presentations like this explain the basics of the TALF program investments and their potential risks and rewards. For GPs, they offer an invaluable look into how consultants are approaching the opportunities and what they’re looking for in the asset managers that they will recommend to their clients. While demand for asset managers offering TALF funds is incredibly high at present, managers offering the funds still must meet the criteria of consultants and investment committees before receiving commitments.
Market Lens offers insight for both ends of the market when it comes to TALF program investment opportunities.
In addition to Fairfax County Educational, US public pension plans like Fresno County ERA, Los Angeles City ERS, Massachusetts PRIM, and San Diego City ERS are among the LP investors who have explored or already invested in TALF funds.
As for the asset managers funding TALF haircuts, Alliance Bernstein, BlackRock, The TCW Group, Nuveen, and Wellington are all pitching new funds focused on investing in the program’s loans.
Whether you’re looking to allocate or get a read on where investors are looking commit, Market Lens can help you discover opportunities.