In a recent fireside chat, John Hartwell Cocke, Partner and Deputy CIO – Credit at Corbin Capital, shared his expertise on private debt and secondary markets. Here are the key takeaways from the conversation:
Background and development of private debt: Cocke has been in the industry for 18 years, starting as a banker at UBS and later moving to Corbin Capital, which now manages $9.5 billion in assets. The firm’s lending business was founded in 2008 and focuses on secondary markets, individual investments and co-investments.
Switching from LP to direct investment: Cocke stressed the importance of understanding the assets and processes behind an investment rather than just relying on a manager’s sales pitch. Corbin Capital’s approach focuses on the asset side, identifying attractive risk-adjusted returns and holding more of them in its portfolios.
Pattern recognition and risk assessment: Cocke stressed the importance of being cynical when lending and considering multiple scenarios and potential risks. He stressed that one must not only think about loan losses, but also extension risks, maturities and possible restructuring.
Secondary market for private loans: The private loan secondary market has grown significantly, with over $20 billion in transaction volume last year. Cocke expects the market to continue to grow due to the increasing size of the private loan market and the need for liquidity. He noted that private loan secondary markets are more tied to yields and have tighter price spreads than equity-based securities.
Drivers of secondary market transactions: Liquidity is the primary driver of secondary market transactions, particularly during times of macroeconomic stress. Changes in portfolio mandates, investment staff turnover and convenience also contribute to secondary market supply.
Information gathering and excess returns: Cocke stressed the importance of gathering information and making contacts to achieve above-average returns in the private loan secondary market. He believes that those who have contacts and connections can achieve the best returns, not only as mercenaries in the secondary market, but also as partners.
Advantages of independence: Corbin Capital’s independence allows the firm to act as a trusted partner without competing with its partners or developing competing strategies. This independence allows the firm to have a deeper level of knowledge and experience, which is essential to achieving superior returns.
Growth and outlook: Cocke is most bullish on specialty finance credit strategies and private credit secondaries, which offer cash flow visibility and long-term opportunities. In the current higher interest rate environment, he would invest $1,000 in credit strategies, focusing on defensive investments that can preserve capital and generate excess returns.
Important timestamps:
00:09: Introduction to the fireside chats by ION Influencers
00:33: Background and development of Corbin Capital
01:23: Switching to credit funds
02:14: Overview of the company and investment focus
02:44: Switching from LP to direct investment
03:46: Focus on asset-centric approach
04:55: Implementation of different structures
05:56: Private lending in focus in 2008
08:07: Importance of diversification in loans
08:55: Key questions in underwriting and risk assessment
10:44: Development of private credit as an asset class
12:09 p.m.: Growth of the secondary market for private loans
13:21: Comparison with Private Equity Secondaries
14:58: Education and stakeholders in private credit secondary
28:58: Conclusion
