Stuart Fiertz, co-founder and president of $10bn Cheyne Capital Management, believes the market environment will get tougher still but should suit alternative approaches.
“It feels like the tide is going out and we are going to see who is still wearing swim trunks,” he said on the AFI podcast. “There are a lot of strong currents that will effect the ability of companies to refinance. On the real estate side you have the combination of much higher interest rates with higher cap rates.”
Rolling debt will become very difficult for some. You will end up with some players “finding themselves to be over-leveraged” in this environment.
“You can see this in the share prices of some of the listed REITS,” he added, highlighting some of the German multi-family stocks. “That will be a dynamic area where there is no obvious beta to own so you need to move into more of an alternative approach.”
Fiertz was optimistic that private credit could overcome tests to come in a rising rate environment.
“Private credit got a pretty good test during Covid and was able to work with borrowers and keep defaults at levels much lower than feared,” he says.
“Private credit is going to have more flexibility to be accommodating going forward than banks are. The question over private credit was what would happen when times got difficult. With the implementation of IFRS 9 it is much harder for banks to extend and pretend now.
“I’m reasonably optimistic and I hope I can say that without being accused of burying my head in the sand.”