Senior Secured Loan Market

Senior Secured Loans: Attractive current income coupled with a short duration profile and a history of low correlation returns.

Feb 15, 2017 | Bjorn Wolber and Sanyog Yadav

Senior Secured Loans (SSL) provide investors with an attractive investment opportunity

Investors are facing growing challenges in the current capital market environment which is characterized by a mix of overall compressed risk premiums, low-yielding ‘safe-haven’ investments and recurring high volatility. In this environment, it is challenging to make sustainable decisions in order to reach the targeted returns.

Against this background, it remains hard to obtain resilient forecasts on future interest rate developments. To manage this uncertainty, we believe that a fixed income allocation should be considered that enables 1) a flexible response to future interest rate movements and 2) automatic participation in future rate hikes without diluting returns on investment.

In the current market environment, Senior Secured Loans (SSLs) can offer attractive features that may cater for the needs of investors:

  • Attractive current income – independent from market environment
  • Minimal duration risk – providing a hedge against rising interest rates
  • Historic record of low volatility of investment returns compared to traditional asset classes
  • Good historic and current risk-adjusted return profile
  • Implied comprehensive credit risk mitigation mechanism – senior in capital structure and secured
  • Low historical correlation of returns – providing potential benefits from portfolio diversification

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