Spotlight on Ilfryn Carstairs, Chief Executive Officer & Co-Chief Investment Officer, Värde Partners
Global Thought Leader Spotlight
Ilfryn Carstairs, Chief Executive Officer & Co-Chief Investment Officer, Värde Partners
Recent economic events and market volatility signal that we are clearly in an unfolding global credit cycle. There is significant negative pressure across almost all parts of global financial markets, driven by higher interest rates, persistent inflation, diminishing liquidity in traded and capital markets and, most recently, extreme volatility and stress in the banking sector in the U.S. and Europe.
The issues in credit are now also significant enough to drive the tighter linking of interactions across the market that make a cycle spread, in our experience, from one segment to another. This is the essence of a credit cycle; problems, when they occur in large enough parts of the market, create more problems. Credit standards tighten, availability goes down and costs go up, drawing more sectors of the market into stress.
Credit sectors that are large and sensitive to this risk then come further into focus and other lenders pull back. This amplifies the effects and leads to self-fulfilling stress even in high quality assets and borrowers.
Broadly, the most heavily affected areas are those that face the ‘triple threat’ for credit: rates-sensitive valuations, high market dependency for financing, and low ability to pass through cost inflation.
At this stage of the credit cycle, we find conviction in safer investments where the stress is coming from liquidity gaps rather than credit risk, looking for places with downside protection regardless of the depth of the economic cycle. Given the historic shift in liquidity conditions in credit, from feast in 2020 and 2021, to famine in 2022 and into 2023, the opportunities to benefit from this stage of the cycle, where attractive returns are available simply for being a provider of liquidity to high quality borrowers, are even deeper than usual. As the cycle matures, uncertainty reduces and capital returns for these higher quality situations, but there are numerous opportunities to invest in situations of actual stress and distress.
We are firmly in the first phase of the cycle and patience is a virtue. Cycles often take 18 to 24 months to play through. It is most important in this phase to respect uncertainty and the value of capital, swing for high quality returns with downside protection, and especially to be disciplined about taking on distress. Equally, when you see opportunity that fits the bill, invest.
Thematically, in traded credit, there is urgency – in our view – to act on the here-and-now pipeline and provide liquidity at current yields. Segments of the market now offer a level of quality in risk/reward that we seldom see, and which generally doesn’t persist for long: other buyers will quickly flock to safety in good assets if markets see another leg down as this cycle accelerates in earnest.
In private markets, the issue of the moment evolves toward the influence of tightening regulatory requirements in the U.S. banking sector – particularly for non-systemically important banks where the convergence of regulatory standards toward those applied to the largest banks requires significant change in areas where smaller banks have been active outliers; for example, commercial real estate, general construction lending, and equipment finance.
It is an incredible time to be a provider of capital and liquidity in credit markets – it has been many years, back to the GFC, since we have seen the confluence of stress and capital gaps developing simultaneously across the wide range of corporate, real estate and consumer credit that Värde follows globally across traded and private markets. While there will be complexity to navigate, we believe there will be a real depth and persistence over time of this growing opportunity set for those who understand how to invest through cycles.
Ilfryn will share current views on the credit cycle and explain why we are in the midst of one of the richest environments for opportunistic credit investing. He will discuss how investors can pursue the best relative value across both public and private markets globally when he presents at Global Investment Institute’s upcoming Private Credit Roundtable, taking place on Thursday, 4 May 2023 at The Residence - Grand Hyatt Melbourne, Victoria.
To register your interest in attending, click here or for more information email zlatan.kapetanovic@globalii.com.au.
Ilfryn Carstairs, Chief Executive Officer & Co-Chief Investment Officer, Värde Partners
Ilfryn Carstairs is Partner, Chief Executive Officer and Co-Chief Investment Officer of Värde Partners. Based in Singapore, he chairs the firm’s Investment Committee and leads the firm’s global business and investment strategy.
Ilfryn joined the firm in 2006 in London, where he played a key role in building Värde’s team and business in the European region. Through his career with the firm he has invested across a wide spectrum of financial assets ranging from corporate restructurings and liquidations to more actively traded opportunities. Before joining Värde, Ilfryn worked for Deutsche Bank London in the Financial Sponsors Group, and Pacific Equity Partners, an Australian leveraged buyout firm.
Ilfryn received a B.C. from the University of Queensland, Australia and an M.B.A. from INSEAD, France.
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