Jack Snyder
Welcome to Antares Beyond the Basics. My name is Jack Snyder. I'm the Head of U.S. Wealth Distribution at Antares Capital. There's been a lot of press out there and headlines around moving base rates impacting both the public and private fixed income markets. However, we feel there's still a tremendous amount of premium to be had in the private markets. You have to look below the surface though to really understand what's happening. Steve, can you share some insights?
Steve Rubinstein
Hi, Jack. Good question. Yields across most fixed income investments, including private credit, high yield bonds, broadly syndicated loans, and even dividend yields on equities, have all declined. Importantly, the spread between private credit and these benchmarks have remained steady. That spread is occasionally referred to as an illiquidity premium.
It should reward investors for holding a measured amount of illiquid assets. Institutional investors have recognized this for decades and sophisticated wealth investors have caught on that you don't have to be 100% liquid in your portfolio. Private credit managers continue to deliver value to private equity firms for LBO financings. Speed, certainty, mutual trust, ease of execution and the privacy to execute outside of the public markets are all critical. These advantages help sponsors move quickly and confidently, which helps to justify the economic premium relative to a broadly syndicated execution.
BDC dividend rate cuts tend to make headlines, but we don't think they are necessarily a cause for investor concern. For most BDC portfolios, assets and liabilities are both matched with floating rates. As base rates decline, distribution yields should also naturally move lower. Investors should closely monitor the all-in return, which includes the distribution yield combined with changes in NAV.
In a market with declining base rates and spreads, we think the manager's track record and discipline is critical. Managers should maintain their long-term investment strategy and resist the temptation to stretch for yield by adding more risk.
At Antares, we believe our scale, experience, and sponsor and borrower relationships allow us to preserve that private credit premium while also minimizing losses. We offer current and consistent income from distributions and maintain transparency and alignment with our investors. Our track record shows that discipline drives performance across cycles.