Weathering the Storm

How are credit fund managers shaping their investment strategies in light of the uncertain market conditions brought about by COVID-19? Ropes & Gray, together with Debtwire, conducted two surveys—one just prior to the introduction of COVID-19 lockdown restrictions and one in the midst of the pandemic—to find out. The results show that managers are reluctant to develop new investment strategies, choosing instead to focus on their most successful existing strategies in order to ride out the pandemic. In general, managers are trying to cover all their bases, providing downside protection against COVID-19 while considering increased return opportunities, even as fundraising activity has slowed to its lowest levels in the past five years.

Credit Fund Platforms

Key Findings

Our research identifies several trends:

  • 37% of respondents have no plans to change their credit platform products
  • 23% are closing their less popular investment strategies
  • 72% say their strategies involve U.S. loan origination, which generates effectively connected income (ECI)
  • 59% say they receive compensation from types of fees other than management fees and carried interest or performance allocations
  • 60% say access to liquidity has been the most significant characteristic of value preservation for deals during the COVID-19 disruption
  • 30% cite general investor uncertainty as the biggest fundraising challenge for 2021

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Ropes & Gray offers cutting-edge advice encompassing all aspects of the formation and operation of credit funds, including stressed/distressed, special situations, structured finance, real estate debt and direct lending funds. Our experience across the funds spectrum, and in a wide variety of lending and financing transactions, allows us to craft tailored solutions for credit fund managers across all parts of their business life cycle.

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