Investment Strategies

A Credit For All Seasons: In Conversation With Cresset Partners

Tom Burroughes Group Editor February 17, 2023


We talk to a US wealth management firm that recently launched an "all-weather" credit fund - a useful quality in such uncertain times.

When interest rates rise, the economic news is uncertain and there’s still a major European land war going on, investors need to position for different outcomes. In that setting, an “all-weather” approach to the credit markets appears a wise course.

And that stance is one that a new fund from Cresset, the US wealth management firm, is taking. The firm launched its Cresset Partners Private Credit Fund LLC a few weeks ago. Clients, such as family offices, wanted this offering, Kevin O’Donnell, executive managing director at Cresset Partners, told Family Wealth Report.

“The most important component of investing in private credit is getting scale to reduce fees and achieve efficient implementation through a diversified portfolio of high-quality private loans,” he said. “We invest in scale and with the economies that you’d associate with a sovereign wealth fund, pension fund or insurance company.”

O’Donnell argues that senior secured loans provide a natural and effective hedge against inflation and rising interest rates because of the floating-rate coupon that is typically associated with private loans.

This asset class is worth around $1 trillion. (By contrast, when rates rise, this hits the value of bonds paying a fixed coupon.)

Recent market volatility has led to spread widening, providing a compelling environment for deploying capital into private credit, Cresset argues and the firm sees plenty of “dry powder” – unspent capital – that remains in private equity funds seeking an outlet.

“When we look through the cycle, in every case this asset class delivers consistent positive returns,” O’Donnell continued. 

Another important point about the fund is that the credits are exposed to high-quality businesses, he continued. Sectors that the fund likes are ones that are less exposed to the economic cycle, such as non-discretionary consumer, healthcare and software business with high recurring revenue. 

The fund, which is designed to scale out into the billions, with continued efficiency and quality, is targeted for the $500 million level; it can go into the billions, he said. 

The fund looks for credits with strong covenant protection. “We prefer to invest at the top of the capital structure…we are seeing more compensation per unit of risk, as compared to debt securities that are junior in the capital structure and do not provide much incremental return relative to the higher level of risk.”

With the US Federal Reserve and other central banks such as the European Central Bank raising rates, what’s the Cresset view? 

“Look at the Fed funds curve….everyone agrees that rates will be persistently higher versus previous low rates, for the rest of this year and the next,” he replied.

Cresset Partners, part of the Cresset family of businesses in the US, oversees more than $2.6 billion of assets. Cresset Partners was founded by industry veterans Avy Stein and Eric Becker whose previous experience includes starting, nurturing, and backing over 150 businesses and raising more than $8 billion in funding. Cresset Asset Management, meanwhile, provides investment advisory, family office, and other services to individuals, families, and institutional clients.

In June last year Cresset Partners announced the closure of their first industrial-focused fund, the Cresset Real Estate Logistics Fund I. 

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