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Loan Investing in the Start Up Nation

November 8, 2018 - This week, The LSTA returned to Tel Aviv to participate in the 11th Annual Tandem Capital Global Investors Conference.  Why Tel Aviv?  In fact, Israeli investors are intrigued by U.S. leveraged loans for a number of reasons. First, the Israeli economy has been very robust for a number of years with high tech, health care and tourism leading the way.  Moreover, like Australia, the Israeli pension system requires employees to push significant amounts of capital to the insurance companies and provident funds.  Since there are not enough opportunities to invest domestically these funds, together with the burgeoning Israeli family offices and very high net worth individuals, need to allocate significant amounts of their capital globally.  While Israeli investors have long been comfortable directly investing in US real estate assets, they are discovering the merits of allocating to the U.S. loan market.

So what did the panel tell them? LSTA General Counsel – and moderator – Elliot Ganz started with a recap of the mid-term elections and what to expect on the financial regulatory front if the Democrats took back the House and the Republicans retained the Senate.  He explained that while additional laws or harsh regulations were unlikely, with the Democrats taking over the chairmanship of the House Financial Services Committee, setting the legislative agenda and deciding what hearings to hold, the narrative was certain to change and the loan and other markets were likely to be scrutinized.  The panel also detailed why the loan market outperformed other fixed income markets in the difficult month of October as well as year-to-date, and discussed what to expect in 2019 and beyond.   Bottom line:  While documentation terms and spreads are under pressure, the market is in a much better place systemically and the fundamental characteristics of the loan asset class (senior secured, floating rate, short duration, low correlation and low volatility) continue to make them a compelling investment in the current uncertain environment. Slides for the presentation are available here.

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