My early morning reading has already earned dividends. The hot current affairs item of the week is turning out to be the issues around Credit Suisse (CS) and Silicon Valley Bank (SVB). Through my reading and my academic background (Finance & Investment Banking), I am able to inform the team that although the timing around both banks’ issues is close together, they have arisen for different reasons. With everyone’s input, we conclude that although there is strain in the banking sector due to individual banks’ poor liquidity-and-risk management, the downfall of CS and SVB will not cause systemic risk of crisis within the banking sector.

 

 

It is always an interesting meeting as we have naturally different investment styles matching our personalities; as a result, there is often a healthy debate on current investment matters but we almost always end up with a consensus view.

 

The Credit Suisse debacle has crossed over the two other parts of my role (Structured Products leader & Automation Lead). I have been working on an automation coding project which collects all the valuations of our assets under our management at as near to live as possible. Credit Suisse had been a large counterparty of Structured Products in the past and, although our initial assessment was that the holders of these products are not at risk, it was important that we could identify holders of these investments to inform them of our position. Fortunately, I was near completion on this automation and we discovered that no clients held Structured Products whereby Credit Suisse was a counterparty.

 

Regardless, I used the opportunity to demonstrate to advisory staff the benefits in our Due Diligence process on these, as it had flagged Credit Suisse as one being “below average” in terms of preferred counterparty several years ago.

 

Myself and Mark manage a Loan Portfolio Company, Summerwood Place, on behalf of a group of clients. It has been an interesting 6 weeks for the company as we have had a large spate of unplanned redemptions which resulted in us having a large amount of cash unallocated to loans and therefore not earning interest.

 

I had received a direct enquiry from a platform intermediary asking whether I would like exclusive access to a loan opportunity. Immediately I go to work putting the proposal through our Due Diligence process. Although the proposer has included their own Due Diligence pack and valuation report from a RICS Chartered Surveyor, it is incredibly important that we go beyond this and verify its claims to draw our own conclusion. As this is a property backed loan, I compare yields on the underlying security to its comparables recently sold in auctions as well as market benchmarks before looking at the prospective lender’s credit report and the Land Registry Title. Finally, there is the aspect of a more subjective nature in the market forecast. These are multi-year agreements and although the security may be good now, does it look like it will be in 5 years time? After further discussion with the platform to clarify several points, the loan is approved.

 

Although we have had a very large amount of unplanned redemptions in the last 6 weeks, we have worked very hard to reduce this figure but not slipping in our need to be diligent and create good risk-adjusted returns. I have been very pleased that we have become fully lent out again already. This helps the vehicle be more efficient than other methods and enhance returns for clients.

 

I always enjoy these, a well worked relationship results in little snippets of information that are hard to gather elsewhere. Like most bits of news that result in outperformance (or “positive Alpha”), they are often nuanced but important. A great example of this is actually in the notes that come out from Central Bank meetings where a single subtle word change can result somewhat in a changed market view.