Bahrain-listed Investcorp has forecast that the global environment for credit will remain favourable throughout the second half of 2021, as economies worldwide continue their post-pandemic recovery.
The investment management firm, in which Abu Dhabi’s Mubadala acquired a stake in 2017, said credit fundamentals are already solid and improving, with collateralised loan obligation (CLO) issuance reaching record levels in the first half of the year.
“While the COVID-19 variant has emerged as a potential deterrent to growth expectations, credit fundamentals are nonetheless solid and improving.”
Investcorp, which specialises in alternative investments across private equity, real estate, credit, absolute return strategies, GP stakes and infrastructure, reported a net profit of $124 million for the year ended June 30, 2021, compared to a net loss of $165 million in the previous year. Its assets under management also jumped by 17 percent to a record $37.6 billion.
The global credit markets had a challenging period in 2020, as economic activity slowed down dramatically. Amid widespread lockdowns, credit defaults and rating downgrades increased significantly, while corporate earnings were wiped out.
However, after the massive vaccination campaigns and reopening of economies worldwide, the markets staged a strong rebound from their depths last year. The first half of 2021 saw ultra-low default levels and increasing credit spreads. In the European credit markets alone, there has been a “sheer volume” of new issuance, according to Investcorp.
“The European credit market has continued to demonstrate its resilience in Q3 this year, with record levels of new issuance, a rebalanced supply/demand dynamic and almost non-existent defaults,” said Philip Yeates, head of European credit funds at Investcorp.
“While the leveraged loan market is showing the first signs of indigestion from the high volume of primary issuance year-to-date, issuance levels have supported the market’s overall growth and liquidity. We expect that this growing market creates more opportunity to diversify risk and rotate our portfolios in order to increase yields.”
In the US, the credit market also benefited from similar tailwinds to its European counterpart this year, including strong demand for leveraged credit, improving credit fundamentals, low defaults and record loan issuance, according to David Moffitt, co-head of US credit management at Investcorp.
(Writing by Cleofe Maceda; editing by Seban Scaria)
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