Multi-Strategy Alternative Credit – time to exit?

June 25, 2018
| Australia

Sub-investment grade credit has rallied strongly since the GFC, with many institutional investment portfolios generating strong returns from allocations to multi-strategy alternative credit (MSAC). These strategies have performed strongly by providing broad beta exposure to, predominantly, high yield bonds and leveraged loans. However these sectors are now exceptionally expensive both on an absolute and relative basis (compared to other alternative credit sectors) and as such we are advising investors to urgently revisit their existing alternative credit portfolios.

What should investors now do with their MSAC allocations? This paper provides a series of options for investors that are designed to reduce the exposure to the most expensive parts of the alternative credit universe and to diversify into more attractive segments of the credit market. There is limited upside in credit, meaning security level diversification is absolutely critical to building a resilient credit portfolio. This is particularly pertinent given how late we are now in this credit cycle. We are therefore advising investors to prioritise a review of their alternative credit portfolios to ensure they are not caught off guard when the cycle does eventually turn.

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