Stewart (00:35): My name's Stewart Foley, CFA. I'll be your host. I'm thrilled to have you with us today. As a reminder, InsuranceAUM is affiliated with The Institutes. I have a special announcement today. This is kind of interesting. We found out yesterday that we won five podcast awards, three golds, and one was for best host. And that's super humbling. I don't know what I've done to warrant that. We're just here to educate our audience on the most important topics. And what I think is, I'm the leader of the “insurance asset management is cool parade.” So I think this is a wonderful industry, and I've been super fortunate over the last 30 plus years to be a part of it. I'm deeply grateful for the success of this podcast and the dedicated audience that we have that listens to us. And I just want to say thank you so much. So with that, let's get at it. Today, let's talk about this. In markets like this, there's always tension between headlines and reality. Between what's loud and what actually matters, if you will.
Today's conversation is really about separating signal from noise in one of the most talked about areas of private markets: direct lending. And the title of the podcast is Direct Lending: Sorting Signal From Noise. Today, I'm joined by Ron Kantowitz, Managing Director and Head of Private Debt for Invesco's Global Private Credit Group. Ron leads the firm's direct lending platform and serves as lead portfolio manager, as well as a member of the investment committee. Prior to Invesco, Ron was Managing Director at Benefit Street Partners, where he built out the firm's direct lending origination network. Earlier, he founded the US Financial Sponsors and Leveraged Finance Group at Royal Bank of Scotland, growing it into a market leader. He has also held roles at Bank of America and Chase Manhattan, a name we haven't heard for a minute. Ron earned his MBA from the University of Chicago, a fellow Boothy, and an undergraduate degree from SUNY Albany. Ron, welcome to the program. We're thrilled to have you.
Ron (02:51): Stewart, thank you so much for having me. And by the way, congratulations on those awards. That's no small accomplishment, so congrats on that.
Stewart (02:58): I appreciate that. All right, Ron. So as you well know, we always have some icebreakers. And so I've been given some coaching and I've got a couple of questions for you today. Where'd you grow up? That's the first one. What was your first concert that you remember going to? And if you weren’t doing this job today, what job would you most like to have instead?
Ron (03:20): Okay. So I grew up on the East Coast. I'm a New Yorker. I grew up in Queens, New York, home of the New York Mets. And for the last 20 years, I've lived in Manhattan with my wife and my two daughters. First concert I ever went to was Aerosmith.
Stewart (03:35): Oh, that's a good one.
Ron (03:36): Yeah. And if I wasn't doing this today, what would I be doing? I mean, I've done this my entire career. If I wasn't doing this today, I think I might try my hand at managing a vineyard in Napa and likely losing all my money in the process.
Stewart (03:50): I think that's probably fair. It's funny because I live in Fredericksburg, Texas, which is the epicenter of the Texas wine movement. And there's been a lot of folks from Napa and elsewhere in California move here because apparently the climate in some regions here are similar. And so in looking at that economy, I think a lot of these folks are not ... It's not profitable or whatever. It's almost hobby-esque and people work their tails off at it. And I don't know if you know this, but alcohol consumption nationwide is down 15 to 20%.
Ron (04:31):
I absolutely know that. And we all know the reasons for that these days, but yeah, it's absolutely the fact. It's absolutely the case.
Stewart (04:37):
Absolutely. All right. So topic number one, headlines versus reality. Recent headlines from specific defaults to pressure on BDCs and asset manager stocks have fueled some pretty extreme narratives, including talk about death of private lending and death of direct lending and so forth. And for what it's worth, my own take on it is, be careful who's saying it because they may be talking their own book. And so what do you make of those headlines? And what I think our audience really needs is a real unbiased assessment of what's the condition right now.
Ron (05:18):
Look, I think the headlines are conflating a whole series of dynamics that don't necessarily drive to conclusions that reflect what's happening in the market. So, let's take a step back. The first big headlines we heard were late last year when we started hearing noise around companies like First Brands and Tricolor. And I would make the point, those were two highly visible credit events. Interestingly, they had absolutely nothing to do with direct lending, but of course they got painted with the same brush. And I think what's most noteworthy about that is, in the aftermath of those two transactions, Jamie Dimon came out with this concept of there’s cockroaches coming out of private credit. And unfortunately, that term has remained and continues to sort of resurface in the headlines.
I think more consequential issues really start when we start thinking about software. And the second issue starts in sort of late 2025 when certain credit lenders start to see stress across some of their software names. And as those issues carry into the new year and the market starts to catch wind of this, this narrative develops that AI is going to disrupt the software industry. And of course, if you recall, by February, we started seeing headlines talking about SaaSpocalypse. And the reason that that's particularly noteworthy is that some of the largest private credit platforms in the market today have a disproportionate share of their portfolios invested in software and technology. In some cases, as much as 30%. So not surprisingly, focus starts to be directed towards this group of asset managers.
And I think that leads to what's the third and most important issue at the moment, which is structural. Many of those same large asset managers that had significant software exposure had raised money from wealth channels in these vehicles, these non-traded BDCs and interval funds. And because those vehicles are targeted towards the wealth channel, those vehicles were structured to offer limited liquidity on a periodic basis, typically 5% per quarter. So what happens? You've got noise around cockroaches, you've got noise around SaaSpocalypse. We've got all the geopolitical events going on. And so, retail investors understandably start to get concerned, and they look to withdraw some of their capital from the funds. The problem is these non-traded vehicles are not designed to provide fuller immediate liquidity. And by the way, there's nothing wrong with that. They're designed that way. These are semi-liquid vehicles collateralized by illiquid assets. And so what happens is, as more investors seek to redeem capital, the liquidity demands start to exceed these 5% quarterly thresholds. And of course, then the headlines start coming out where they're talking about how these fund managers are not meeting liquidity demands. And that's not what's happening. If you actually look through it, what you see, is in virtually every case, the managers did exactly what they were contractually obligated to do. And in several cases, they went above and beyond.
So in my view, this is not a systemic issue. This is not subprime 2008. This is simply a liquidity mismatch that's concentrated among a specific group of large asset managers who happen to have excess exposure to one sector: software. So you ask—or you don't ask—but a lot of the articles talk about the death of direct lending. I think there's a perfect quote from Mark Twain that fits the bill here. The quote is, "The reports of my death are greatly exaggerated." This industry isn't going anywhere. You have one-off situations. This is not systemic.
Stewart (08:34):
Okay, that's good stuff. I think that makes sense. I mean, we had a call with about 30 CIOs and about half of them were concerned about the headlines and the other half saw it as a buying opportunity. And I'm with you, just my own opinion. This industry isn't going anywhere. But let's talk about AI and sector exposure, and you kind of touched on it before. So there's been a growing concern around the impact of AI on software. And I'd like to understand that better, frankly. In tech-enabled services—historically a big part of direct lending portfolios, you mentioned that—Invesco has taken a different approach here with no exposure there. What drove that decision, which seems very bright right now, and just talk us through that.
Ron (09:40):
Let's just level set. Why has software been so attractive broadly to the private credit space? Software has a lot of attributes that are very compelling. Let's just list a few of them. Number one, they have a recurring subscription base, so you have generally very good revenue visibility. They tend to be minimally capital intensive, so these businesses have very strong free cash flow. The better ones certainly are very embedded in their clients' workstreams, and so they're sticky. You don't wake up January 1st and decide you're going to switch your software provider out. And I think most importantly, this has been an asset class that PE have been very attracted to, and they've been willing to pay very high multiples for. So as a lender, you've got significant equity cushion in front of your debt position. So when you think about these attributes, you start to understand why software has been such an attractive segment for direct lending.
I think in terms of why we have not invested in this space. Look, I'd love to tell you seven years ago we were prescient enough to have predicted that AI might take over, and we should not participate in this space. I think unfortunately, and maybe not nearly as interestingly, our views and our decisions were much simpler. It starts with structure. For all the positive attributes I mentioned a moment ago about software, one of the challenges for us is that software businesses tend to garner very high leverage multiples. And just to give you context, in core middle market portfolios, average leverage multiples run around four and a half times. If you compare that to software, typical software deals can be leveraged six to seven times. And one of my partners likes to say nothing good happens when opening leverage starts at seven times. There's just not a lot of margin for error.
If you just think about what happened a few years ago when we saw interest rates run up 500 basis points, you saw stress play out across a lot of highly leveraged companies. So high leverage, higher risk. I think for us, the first thing is we just weren't comfortable with the leverage multiples that were being sought after. And then the second point for us is, because software businesses tend to be larger, they tend to often be structured more like large cap transactions. And in large cap transactions, you tend to have weaker credit protections. In some cases, they'll be covenant lighter, they'll be covenant loose. And so ultimately, the reason we chose not to invest in software and tech-enabled businesses really comes down to the fact that these are just not consistent with the markets we've chosen to invest in and the types of deals we've looked to deploy our account.
Stewart (12:04):
Well, you know what they say, there's nothing good that happens after midnight, and nothing good that happens after seven times leverage, right? There you go. You can tack that onto the nothing good happens list. So let's talk a little bit about where you are deploying capital. It's interesting that your discipline without regard to software, your underwriting discipline kept you out of trouble there, right? So where are you deploying capital and is there any place that you're cautious about?
Ron (12:37):
Let's start with where we’re deploying and let's talk about where we're cautious. For me, it starts with the fact that, as a team, we've been investing together for 25 years. And so I think we have a pretty well-defined strike zone that we start with. Here are the givens. At a high level, we're going to look for opportunities with businesses that have proven track records, that have strong market positions, that have demonstrated products or services within their marketplace. We're also going to look for businesses with strong management teams. And of course, we're going to hope to align with some of what we think are the smarter private equity investors in the US. And then of course, as we talked about a moment ago, structure and terms matter. All these pieces have to sort of fit together for us to decide that there's a compelling opportunity.
One of the things we like to do is we like to ask ourselves, when we're looking at something, does this business have a reason to exist? And does the fact pattern hold true going forward? And then on top of that, we're going to overlay what's happening in the current market environment. And as we know, there are just a host of issues you have to consider and evaluate and contemplate when you're making investments.
So let me just pick an industry that today we like and talk to you a little bit about why. So we've been very active in the residential services space, specifically in the non-discretionary segment. And I'll give you our investment thesis real simple. So number one, residential service is big market.
Stewart (14:00):
What would be an example, Ron? Give me some concrete examples of things that people would relate to that would be in that segment.
Ron (14:08):
Sure. So we've invested in a business that repairs garage doors. So if your garage door breaks and these things break fairly regularly, whether you back into it or you get hit by a basketball in the garage. If your garage door is stuck open, you have access issues. And if your garage door is broken and it's stuck down, you've got egress issues. So these are not deferrable problems. If your garage door doesn't work, you're going to need to get it replaced. I'll give you another example. If you have a water leak in your basement or mold in your basement, again, these are not things you can ignore. And the thesis really revolves around the fact that a home is typically your largest asset, and you live in it. And so these are not issues you can ignore, these are not issues you can defer. So that's how we're thinking about segments that are interesting and appealing to us in the current environment. Non-discretionary, when you think about the world and the K-shaped economy and the disparity around income, finding businesses that provide a service that is generally non-deferable and non-discretionary makes a lot of sense to us.
Now on the other side, you asked where are we drawing the line? I'll take one big step back. All my partners and I have been in this business for 25 years or longer. And so we all start at banks. And when you start a bank, you go through the classic credit training. And when you learn how to lend at a bank, you learn that there are just certain sectors and business characteristics that make sense and don't make sense. And so across our platform, certain sectors that we generally don't invest in: we don't invest in restaurants and we don't invest in retail and we don't invest in companies that produce single products or faddish businesses or products. We don't invest in energy. Obviously we talked about this earlier, we don't invest in software.
And again, those are just sort of the starting point for us. Then what we do is we overlay what we're seeing in the market. So if I think about what's going on in the market today, there are a handful of issues we need to think about. Again, I mentioned this a moment ago. It starts with the K-shaped economy. We are really cautious on businesses that are levered to middle income consumers that have a discretionary element to them. In addition to that, we're avoiding companies right now that have complex global supply chains, given all the geopolitical dynamics in the world. And of course, we touched on this, but I'll touch on it in a broader sense. We're also evaluating every business in the context of AI risk. We have an AI framework that we use to evaluate every investment. It's not just software. We need to be thinking about the impacts, the implications across the broader economy.
I'll tell you the other part of this for us, and what I think is equally—if not more important—is we need to maintain discipline around risk return. And we have a real simple philosophy around this. We don't believe you can fix a mediocre opportunity with price. Credit needs to be absolute. So if it doesn't meet our credit threshold, adding a hundred basis points of the spread isn't going to suddenly make it better for us. Again, everything needs to be, for us, absolute. My first credit officer at Chase Manhattan Bank used to say, when you lend senior debt, the best you can ever hope for is to earn your coupon and get paid back. So you kind of have to have a really high bar in terms of your risk tolerance.
Stewart (17:22):
I think it's sagely simple advice. I've had the good fortune of being in the room with Buffett a couple of three times. And Howard Marks is the same. He says things that are ... I mean, essentially you're saying we lend money to companies that are going to pay us back. And they're going to pay us an interest payment, and that's the best you can hope for. There's not a set of circumstances where the value of the debt doubles, and you hit a two bagger. It doesn't work that way. And so I think that what you're saying makes total sense. So at the end of the day, as a lender to private equity sponsors, and I think it would be helpful if you could explain sponsor versus non-sponsor, but how do you describe the health of the PE ecosystem today? Has it changed any? And how does that influence your view of direct lending risk?
Ron (18:24):
Why don't I do the first part, which is what's the difference in sponsored and non-sponsored, then we'll lead into what's going on in the private equity world. So you could overgeneralize direct lending and put it in two buckets: sponsored or non-sponsored. As the name suggests, one, you're financing deals where the equity is coming in from private equity firms. The other is there's no equity coming in beneath you. You're lending to family offices, corporate relationships. And there are platforms that are successful doing both. We exclusively focus on lending to private equity controlled companies, and we do that for a few reasons.
Number one, we value the governance, private equity provide. We value the industry expertise they bring. And I think most importantly, when you align with private equity, they're contributing equity. And so one of the metrics that you'll hear almost every direct lender talk about is loan to value. And we have a really simple thesis. If we're lending top of the capital structure and senior secured assets that are collateralized by all the assets and the IP of the businesses we're lending to, and we're aligning with some of whom we think are the smarter private equity investors in the US, and they're willing to contribute more than 50% of the value of these businesses in first loss equity, then our senior secure position should be in a fairly strong position regardless of whatever type of market headwinds we're lending and we're facing. And so for us, again, risk mitigant, aligning with smart private equity investors, I think is a formula for success.
Now, in terms of your question, what do we see as the health of private equity today? I think from our perspective, we think the health of the PE industry continues to be strong. But I think similar to what we're seeing on the private credit side, I suspect there's likely going to be greater dispersion around outcomes in the near term, and that's not necessarily a bad thing. I think one of the challenges that private equity has been dealing with over the past handful of years is that M&A value has been relatively muted. And that's simply a function of the fact that we've had so much volatility in the market, it's been difficult for buyers and sellers to sort of agree upon valuation. And I think the consequence of that is that many private equity firms have been holding assets far longer than they had anticipated. And frankly, some of them are having difficulty exiting at valuations that work for their returns. And so when we think about the market today, what we believe is those private equity firms that have done a good job returning capital to their LPs are going to continue to grow. And those that haven’t are going to likely find it more challenging, and there may very well be a weeding out of the bottom quartile. But again, this is no different from what you're likely going to see on the credit side. So for us, ultimately, this is a large market. These are incredibly sophisticated investors, and I would expect the industry's going to continue to grow and prosper.
Stewart (20:53):
I think that's really well put. And I think that you're getting at a point here, which is manager selection matters. So given the private and relatively opaque nature of the asset class, what should an insurer be looking at when they're talking with a direct lending manager? One of the things I would offer, and the point's been made on this podcast in the past, is that existing relationships with PE managers that you know, these firms have a personality, right? They have a reputation. They do things a certain way, and you learn that over time, which is something that is difficult to replace. That's a pretty big moat. Can you talk a little bit about not only manager selection, but also the relationship that develops over time?
Ron (21:50):
I think more than ever, it's incumbent upon the investor to do their work and to ask their questions. I think if the one thing we've learned is just following the herd isn't necessarily the best approach to picking the right managers. And so when we deal with potential investors, we try to guide them. Number one, if I were advising an investor on how to think about diligencing a manager, it starts with the team. Understand what their experience level is. Have they worked together? Have they been consistent in terms of their investment approach? But I think you got to go way beneath the surface to really understand what's happening at these managers. And what we tell them is, look, you got to ask for the data. It's available. And there's a long list of metrics that you need to start to look at to sort of understand what the real performance of these managers are.
I'll give you a few examples. So one that everybody talks about, but it's important is look across portfolios for bad PIK. Bad PIK, just for anybody that's not aware, these are companies that initially were structured to pay current interest and, for whatever reason, they no longer can meet those current interest needs. And so they've converted some of that, if not all of, that interest to PIK, and that's bad PIK. Contrast that with good PIK were maybe, right out of the blocks, you structured the deal that had a PIK element because there were reasons for it. So if you see a lot of bad PIK in a portfolio, clear indication of deteriorating quality.
Stewart (23:09):
Just to step in for a second, PIK stands for payment in kind, which means that they're not paying cash. If I understand it correctly, and please guide me here, that basically the interest is tacked onto the balance at the end. And what I think you're saying is pieces of the portfolio that didn't start in PIK that are now in PIK. As opposed to, at the beginning, they were structured that way all along and it isn't that it didn't. It is essentially an indication of financial stress on the borrower. Is that fair?
Ron (23:50):
Stewart, I couldn't have said it better myself. That is exactly the case.
Stewart (23:53):
Well, we are an award-winning podcast over here, Ron. What the heck?
Ron (23:57):
Again, the reason we call it bad PIK is because you can structure deals initially with a PIK component. Perhaps you have a company that's got significant capital needs right out of the blocks, and so you want to give them a little bit more leeway. But when it doesn't start that way and it ends that way, that is a clear sign that the company just doesn't have sufficient cashflow to service their debt.
Stewart (24:16):
Well, I mean, if you're a buyer of it upfront and it's structured that way, you know that. When you buy something that's got coupon income and then suddenly doesn't, you essentially didn't sign up for it. I mean, I don't want to put words in your mouth.
Ron (24:30):
No, that's exactly right. You nailed it. So I'll give you a few more things just to think about. And again, there's a long list of them, but look for diversification. So we talked a little earlier about the overindexing to software. Look, a fundamental tenet of an asset manager, of portfolio management, is diversification. So you want to diversify by sector, but, equally, and we talked a little bit about this, look through to see, is there a broad base of private equity firms that you're supporting? There are a lot of lenders that will say, oh, private equity firm X, we do all their deals. The problem when you do all of certain private equity’s deals is you have to do all of that private equity’s deals. And that may not necessarily be the best course of action. So look for diversification.
Look for leverage creep. Another metric, right? Look at where opening leverages are. Look at where leverage is today. If those numbers have creeped up, that tells you something about performance. That tells you perhaps businesses aren't doing what they thought they would. Look through for documentation. Ask, do you have maintenance covenants in all your deals? And if they're maintenance covenants, are they real? Are they maintenance covenants? Are they these terms covenant loose, covenant light, covenant wide? All ways to tell your investor, "I've got financial maintenance covenants, but at the end of the day, these are not covenants that actually can provide the type of protection that you're looking for."
And look, I can go down the list. I'll give you one more that I think is important. Understand how managers are valuing and marketing their portfolios. Are they using arms-length third-party entities to provide those valuations or are they doing them in- house themselves? That matters. And then lastly, look for style drift. These days, it seems like everybody I talk to and everybody I hear is focused on the core middle market, lending senior debt. But go back and ask, what were those guys doing three years ago? And you'd be surprised how many of them had an entirely different investment strategy then. So find the managers that have been consistent in their strategy and aren't just providing or going down a path today because the winds have changed direction.
Stewart (26:34):
Yeah, it's super interesting. Those are some really interesting practical suggestions to look at. So you've kind of covered this. I mean, the aspects of your platform that are proving valuable in today's environment. If I'm an insurance investor, let's say that I have capacity for private credit and I have capacity for direct lending and I see all these headlines and spreads have widened. Now, some of these folks have better relationships with their investment committees than others, and there's also a regulatory component here. But from leaving that aside, how would you look at the opportunities that you're seeing today given the recent ... I don't know about dislocation. There's been some volatility. Let's just say it that way.
Ron (27:35):
I think the one thing we know, having been investing across this segment for the past 25 years, is markets are constantly changing and evolving. My team that has been together has invested across credit cycles, market dislocations, the GFC, geopolitical conflicts, wars, interest rate spikes. I mean, you name it. And if there's one thing we've learned across the last 25 years is that markets will, with some regularity, dislocate. And if you understand and you can recognize those situations, there could sometimes be tremendous opportunities to generate real alpha then. So when markets start to get a little bumpy, that's the time to sort of, if you've got the discipline, if you've got the capability, if you understand what you're doing, that's when you're supposed to step in and you can really generate compelling opportunities in alpha for your investors.
At the moment, I think the market's still trying to find its footing. As we talked about earlier, there's a lot of headlines, there's a lot of confusion. I think the markets will gain footing over the next couple of quarters. We'll likely continue to hear noise around redemptions. But in the meantime, if markets back up, if they dislocate, if you can continue to find great opportunities, you're able to get slightly better terms, just given what's happening in the market, I think that's what we're supposed to be able to do. That's the skill we're trying to bring to our investors.
Stewart (29:01):
Yeah. I mean, and you're looking at it versus investing when it's priced to perfection, which was the case not that long ago.
All right. So I've gotten a tremendous education. I love doing these podcasts because I learn so much, which is great. And I hope our audience does too. You've been in this business for a minute. I mean, I've got a bunch of gray hair and you've got some too. What characteristics do you look for when you're adding to members of your team? I'm not talking about the school and the, can they code, but really more characteristics of what kind of people are you looking for?
Ron (29:40):
That's actually an easy one because we literally talk about it all the time. The term we love to use is intellectually curious. And the reason we use that term, look, we're in the business of evaluating investment opportunities. And typically the way the process works, we're given an opportunity, we're shown a company, we're presented with a story. And it's easy to just take the facts on face value and say, oh, this makes a lot of sense. And they're selling memorandums. So guess what? They generally tend to be fairly positive in terms of how they're presenting it.
Stewart (30:14):
You've seen a hockey stick or two in your life, I'm sure.
Ron (30:17):
Yeah, more than a few. And so what I want is I want our folks to challenge the state, challenge the assumptions, dig in, question the underlying premise for why this is going to happen or that. And I think, again, this is all about how do you protect your credit, how do you protect capital? And so it's intellectually curious for us, that's what you have to be. You got to challenge the statements, you got to dig deep, you got to identify your own risk concerns, and you got to figure out if you can mitigate them.
Stewart (30:45):
That's awesome. All right, last question. You can have dinner with up to three people. One, two, or three. You don't have to have all three, you can have one, two, or three. These people can be alive or dead. Who would you most like... By the way, I always say this, dinner's on us. We'll use our podcast award money.
Ron (31:06):
I love it.
Stewart (31:06):
Which we didn't get any, by the way. But anyway, who would you most like to have dinner with?
Ron (31:12):
I think right now it'd be pretty easy for me. I would love to have dinner with Presidents Bush, Obama, and Clinton. What's that term in the UK, Chatham House Rules, where you can say whatever you want. I would love nothing more to sit with those three guys over the course of a meal and get their take on what's going on in the world today.
Stewart (31:34):
It's interesting. The environment and rules seem to be very different than they were in those times. And I think that would be an interesting perspective. So I really appreciate you being on. You did a great job of educating our audience and I learned some stuff as well, and I really appreciate it. Ron, thanks for being on.
Ron (31:55):
Stewart, thank you so much. It's been a pleasure, and I very much appreciate the time.
Stewart (31:59):
My pleasure. Ron Kantowitz, Managing Director and Head of Private Debt for Invesco's Global Private Credit Group. Thanks for listening. If you have ideas for podcasts, please shoot me a note at podcast@insuranceaum.com. This is a video podcast I'm holding up on the screen. Check out that Rubik's Cube with six of the aspects of insurance asset management. We'll send you one if you give us a podcast idea that we use. Please rate us like us and review us on Apple Podcasts, Spotify, or wherever you listen to your favorite shows. We also have a YouTube channel at InsuranceAUM Community. In case you want to see what we're up to, you can check us out there. We look forward to seeing you next time. This is the home of the world's smartest money at the insuranceaum.com podcast.
Investment Risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Many products and services offered in technology related industries are subject to rapid obsolescence, which may lower the value of the issuers in this sector.
Direct lending involves providing loans to private companies, often without the same level of transparency or regulatory oversight as public markets. Borrowers may experience financial distress or default on their obligations, leading to potential loss of principal and interest for investors. Additionally, these loans are typically illiquid, making it difficult to exit positions quickly, especially during adverse market conditions.
Investments in private credit and private debt—including leveraged loans, middle market loans, mezzanine debt, and second liens—are speculative and involve significant risks. These securities are generally illiquid, lack a secondary market, and may need to be held to maturity, which can result in liquidity constraints and difficulty exiting positions. Borrowers often have high leverage, increasing default risk, particularly in adverse economic or interest rate environments. Competitive pressures and excess capital may lead to weaker underwriting standards, raising credit risk and reducing potential recoveries. Private market investments also carry risks related to limited transparency, higher fees and expenses, longer investment horizons, and regulatory considerations. Additionally, these securities may be sold or redeemed at values different from the original investment amount and are considered to have speculative characteristics similar to high-yield securities. Issuers are more vulnerable to changes in economic conditions than higher-grade issuers, and investors may face liquidity strain from capital calls during periods of market stress. These factors can materially impact investment performance and principal value.
For Institutional Investor Use Only
Invesco Senior Secured Management, Inc. and Invesco Advisers, Inc. provide investment advisory services and do not sell securities.
All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is being provided for informational purposes only, is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in any investment making decision. This should not be considered a recommendation to purchase any investment product. As with all investments there are associated inherent risks. This does not constitute a recommendation of any investment strategy for a particular investor. Investors should consult a financial professional before making any investment decisions if they are uncertain whether an investment is suitable for them. Please read all financial material carefully before investing. Past performance is not indicative of future results. The opinions expressed herein are based on current market conditions as of April 15, 2026 and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
Invesco is not affiliated with InsuranceAUM or Mark Twain.
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