Credit Fund Managers Pause Implementation of New Investment Strategies Due to COVID-19, According to Ropes & Gray Research

COVID-19 has stalled the emergence of new credit fund investment strategies and has pushed managers to focus on their existing credit platform products, according to a new report from global law firm Ropes & Gray. 

The report, “Challenges and Opportunities in Post-COVID-19 Credit Fund Platforms 2020” analyzes the responses of 100 senior-level executives at U.S.- and U.K.-based credit funds. To get a sense for how credit fund managers are shaping their investment strategies in light of the economic upheaval and uncertain market conditions brought about by COVID-19, executives were surveyed twice: prior to the introduction of lockdown restrictions and again in the midst of the pandemic. 

Early in 2020, 50% of managers stated they were considering launching new investment strategies. Six months later, only 20% were, reflecting a distinct shift away from pre-COVID-19 enthusiasm. 23% responded that they were closing less popular strategies, and in light of the COVID-19 pandemic, managers and investors alike are more focused on existing strategies. 

Commenting on the overall findings, Ropes & Gray asset management partner and head of the credit funds practice, Jessica O’Mary, says that despite fund managers’ concerns, credit funds have proven resilient: “There had been some concerns around systematic risk issues with these products, but by-and-large, the system held up pretty well.” 

The survey also revealed a degree of bifurcation in terms of credit managers’ intentions. Strategies that provide downside protection against COVID-19 are deemed vital to 63% of respondents, but so are increased return opportunities to 73%. 

On the transactional side, 63% of investors began the disruption period with a focus on downside protection, though 33% of those shifted their focus to upside returns later in the period. 60% of respondents say access to liquidity has been the most significant characteristic of value preservation for deals during the COVID-19 disruption. 

“There has been robust deal flow in the rescue and bridge liquidity arena, where companies that have struggled have sought to raise additional liquidity to carry them through this period,” said Ropes & Gray finance and capital solutions partner Alyson Gal. 

Acuris Studios, on behalf of Ropes & Gray, conducted both surveys. A full copy of the report can be accessed here. 

This is Ropes & Gray’s second research project on credit funds.  The first, conducted in 2018, can be downloaded here.