When Smooth Returns Hide Real Risk in the Late-Cycle Credit Environment
The evolution of leveraged finance credit markets over the past five years should prompt investors to recalibrate their expectations when assessing private versus public credit today, particularly from an alpha-generation and late-cycle perspective.
At a broad level, private credit portfolios relative to public credit portfolios have underperformed since 2022, are less liquid, have lower credit quality, higher industry concentration and are the more expensive financing option for borrowers.
The period for significant alpha generation from private credit is behind us. We expect public credit outperformance of private credit, broadly speaking, to continue, particularly on a risk-adjusted basis.
The landscape has changed, and we urge investors to know what they own and be highly aware of the distinct differences when assessing the different trades that are: Private vs. Public Credit.
Mr. Cohen joined DoubleLine’s Global Developed Credit (“GDC”) Group in 2012. He is a Portfolio Manager and the Director of the GDC group. He is also a permanent member of the Fixed Income Asset Allocation Committee. Prior to DoubleLine, Mr. Cohen was a Senior Credit Analyst at West Gate Horizons Advisors (and its predecessor ING Capital Advisors) where he worked as an Analyst covering bank loans and high yield bonds. Prior to ING, he was an Assistant Vice President in the Asset Management Group of Union Bank where he managed a diversified portfolio of leveraged loans as well as a portfolio of CDO securities. Previous to Union Bank, he was an Associate Director of Corporate and Investment Banking at the Bank of Montreal in its Natural Resources Group. Mr. Cohen holds a B.A. in Economics from the University of Arizona and an MBA from the University of Southern California. He is a CFA® charterholder.
