Kuvare Asset Management Q&A With Structured Credit Investor
Brian Roelke, President and CIO of Kuvare Asset Management, Answers SCI’s Questions
Q: What were the motivations behind the launch of Kuvare Asset Management’s new third-party asset management business?
A: Unlike a lot of entrants into this space, Kuvare Asset Management (KAM) started as an insurance-focused asset manager, as all of our activities today are focused on our affiliated insurance balance sheets. The announcement of the new platform signifies that, for the first time, we are open to investing on behalf of unaffiliated balance sheets – providing access to our differentiated pipeline of private credit investments for those like-minded investors. The reason we think this is attractive for our platform is that by increasing our all-in check-size, through bringing in unaffiliated capital, we’ll open our potential pipeline of investments even further – thus creating additional value for all of our clients.
Q: What makes now the right time to establish the new platform?
A: We focus on four niche, specialized areas in private credit: private corporates, private ABS, structured credit and commercial mortgages. Over the last 15 years, private credit has become an area of increased focus for insurance companies and other investors. Largely, as a result of the persistent low interest rate environment, insurance company balance sheets are allocating to illiquid investment categories, including the four niche private credit areas where we focus. We believe that private credit continues to be an attractive investment area for our insurance balance sheets and would be for our unaffiliated clients as well because, even in a rising interest rate environment, the yield premium that’s available could remain attractive. More importantly, the downside protection available in private credit structures adds meaningful value over the long term, in the form of either hard security or maintenance financial covenants, or both.
Q: Which opportunities are you seeking to capitalize on with the new business?
A: We are seeking to expand our origination capabilities in those four areas, as we believe that there will continue to be attractive investment opportunities for the short and medium term. As we have seen traditional bank and finance channels move away from providing capital directly to these sectors, insurance companies and other speciality private credit investors have stepped in to fill those gaps. We think many of the factors that have influenced those changes will be persistent – it is difficult to see a lot of those reversing themselves anytime soon. As a result, we think there will be a permanent role for speciality private credit investors in the global financial markets.
Q: How do you intend to differentiate the platform from those of your peers?
A: First, we invest on behalf of our affiliated balance sheets and, in all of the transactions that we execute, the expectation would be that – subject to guidelines and our allocation policies – unaffiliated clients would be investing directly alongside us. That’s a clear differentiating factor in today’s marketplace. Second, we have a highly experienced team of individuals, who bring to the table decades of experience in analysing these specific transactions – which is very important, as we are entering into these investments with the expectation that these are buy-and-hold investments. Our bottom-up approach to underwriting that takes place on the front end relies heavily on the experience level of the teams originating those investments. Just as important are the networks that each of the members of our team brings to the table. Those networks enable us to drive differentiated originations in these asset classes. Our team also brings to the table decades of insurance industry experience, which is an important input in the underwriting process.
Q: Do you anticipate any challenges for the new business in the immediate future? If so, how do you intend to overcome them?
A: The biggest challenge relates to the human capital side of our business. However you phrase it – the great renegotiation, or the war on talent – our business relies heavily on the experience level of our team and the specific individuals who we’ve brought together here at KAM. A large part of my job will continue to be attracting and retaining high-calibre talent on our platform. In our recent announcement, we announced that Ana Morales has joined us from Goldman Sachs, Thomas Pasuit from MetLife and Joseph Orofino from Further Global, enhancing the talent we already have in place. One of the most attractive aspects of working at KAM is that our team is directly aligned with the long-term success of our business. Our team members are also aligned with each other, and we have a highly collaborative workplace environment. We believe that the alignment of interests provides for not only a differentiating factor in the marketplace, but also represents an attractive aspect of working here. I’ve had more than one of our investment professionals at KAM tell me this is their favorite job they’ve ever had – and it’s my goal to make sure that every one of our team members feels that way. I challenge myself to continue to find ways to make that true.
Q: What are your hopes for the future of the business?
A: We have historically been, first and foremost, stewards of our affiliated balance sheet capital. For us, success is continuing to find strong risk-adjusted returns for our portfolios in the process, as our origination capabilities have begun to expand beyond our internal demand. So, by bringing in unaffiliated investors and providing them with the opportunity to invest alongside our affiliated balance sheet, we hope to drive a more stable platform for continued success in insurance asset management. Our long-term success will be determined by how successful we are in not only sourcing attractive transactions, but also the resulting track record and success of those individual investments.
Q: What are your expectations for the securitization market more broadly this year?
A: The biggest trend we’ve seen, certainly for 2022, would be the transition from Libor-based loans to SOFR. There was obviously a lot of activity in the fourth quarter of 2021 in advance of those changes and, so far, it seems like the transition is proceeding quite smoothly. The broader geopolitical environment remains high on our list of areas of focus – as credit investors, we look at things from both the top-down and the bottom-up. Uncertainties are quite high in markets right now, and we’re seeing that in a number of different ways. But hopefully we’ll get more clarity over the next couple of months and that can have a material impact on broader economic themes, as well as on our originations and portfolio more specifically.
This article was published in Structured Credit Investor on 1 March 2022.