Spotlight on Jon McKeown, Managing Director, Portfolio Strategy & Analytics, Northleaf Capital
Global Thought Leader Spotlight
Jon McKeown, Managing Director, Portfolio Strategy & Analytics, Northleaf Capital
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As the Managing Director, Portfolio Strategy & Analytics at Northleaf Capital Partners I am responsible for the overall portfolio and macro analysis for our private credit and private equity mandates. I also serve on Northleaf’s Private Credit Investment Committee and firm-wide Responsible Investment Committee.
The outlook for private markets
There are a number of key developments unfolding that allow well-placed institutional investors to capitalise on a range of opportunities, namely:
• Increase in global private equity market activity A more stable operating environment, visibility to stable or declining interest rates, upcoming debt refinancings and record levels of ‘dry powder’ are collectively supporting a rebound in private equity deal volumes in 2024.
• Strong global private credit returns On a relative basis, private credit returns remain very attractive, although market factors are contributing to a moderate tightening of credit spreads in some parts of the market, while risk premia are holding up elsewhere. We therefore expect to see greater variability in returns as we look across geographies, compare lower to upper middle market and consider asset-based lending opportunities against those in the corporate sector. Allocation decisions made across these dimensions will impact private credit returns over the next several years.
• No more ‘free money’ A legacy of the events that unfolded over the past few years is likely to be a reset in the level of the ‘risk-free’ interest rate, over the course of an economic cycle. This reset would lead to continued strong returns in private credit, which are anchored to floating rates.
• Long-term tailwinds remain Global private credit continues to deliver for investors, while the risk appetite and core function of banks continues to evolve. As a result, the asset class can be expected to see continued strong and steady growth in the coming years. This growth will be accompanied by innovation in both financing solutions for borrowers and product solutions that serve the needs of an expanding population of investors looking for global exposure to private credit.
Implications for institutional investors
Global private credit has consistently delivered stable cash yields tied to floating rates. This is underpinned by strong borrower fundamentals and lender protections of the asset class. Together, they have translated into enhanced returns and diversification benefits for investor portfolios. These characteristics are set to persist, making a compelling case for the maintenance of a sizeable, permanent allocation to global private credit.
Within global direct lending, there is benefit in establishing diversification in terms of geography, borrower size and even position within the capital structure. Managers with the flexibility to invest across these dimensions will be better positioned to crystallise relative value differences and take advantage of market dislocations as they arise.
The addition of an asset-based specialty finance exposure to a core direct lending allocation or portfolio can provide attractive diversification, enhanced yield and downside protection opportunities. Within asset-based speciality finance, niche verticals including music royalties, litigation finance or healthcare receivables have idiosyncratic performance drivers and exhibit very low correlation to macroeconomic factors. Specialised underwriting and transaction structuring capabilities are required to participate in such deals and ensure that the investor benefits from significant asset collateralisation.
Jon will be presenting at Global Investment Institute’s upcoming Private Credit Investment Forum, taking place on Thursday, 2 May 2024 at the Grand Hyatt Melbourne, Victoria.
Register your interest in attending here or for more information email zlatan@globalii.com.au.
Jon McKeown Managing Director, Portfolio Strategy & Analytics, Northleaf Capital
Jon oversees the portfolio construction, risk management, analytics and research that support Northleaf’s private equity and private credit funds.
Prior to joining Northleaf in 2016, Jon was Managing Director, Global Head of Strategy, Risk and Analytics at Värde, a global alternative asset manager with offices in Minneapolis, London and Singapore. Previously, Jon was a Principal with Bain & Company where he focused on alternative investments and asset management. Jon began his career with HSBC and PricewaterhouseCoopers in capital markets and audit roles.
Jon received an MBA (Dean’s List) from the Rotman School of Management, University of Toronto and a B.Sc (International Management) from the University of Manchester.
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Disclaimer
The views expressed in this publication are solely those of the individual and do not reflect those of their employer organisation. These views should not be relied on as research or investment advice regarding any stock and are subject to change. There is no guarantee that any forecasts made will come to pass. Forecasts are subject to numerous assumptions, risks, and uncertainties, which change over time, and the individual undertakes no duty to update any such forecasts. International investing may involve risk of capital loss from unfavourable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.
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