November 15, 2017 - This week, the LSTA traveled to Tel Aviv to present a panel before 450 attendees at the Global Markets International Conference on the U.S. institutional corporate loan market.
Why journey 6,000 miles to discuss the U.S. loan market? There are a number of drivers. The Israeli “start-up” economy has been doing very well for the past few years and changes in pension laws are driving significant sums to insurance companies and provident funds. As a result, institutional investors in Israel have about $500 billion to invest and that number is expected to grow quickly to more than $750 billion. Also, the number of very high net worth individuals and family offices in Israel has multiplied recently as a result of the tech boom and other factors. These investors are keenly interested in investing a portion of their assets outside the country.
This leads us to the Tel Aviv panel, moderated by LSTA general counsel Elliot Ganz and featuring Gretchen Bergstresser of CVC, David Mechlin of CSAM and Dan Norman of Voya. To level-set, the panel explained the basics of the corporate loan market and then described the relative value of loans as compared with high yield bonds (with which Israeli investors are more familiar), including loans’ lower loss expectations and very low duration risk. With Israeli insurance and provident funds looking for solid but steady returns and family offices looking for higher returns, CLOs and separately managed accounts could meet those expectations. CLOs provide Israeli investors the ability to invest anywhere along the capital structure to meet their risk/return profiles and SMAs give investors the flexibility to create tailor-made instruments to participate in the market. The panelists ended by highlighting yield trends. In a nutshell, two points: a continuing imbalance between supply and demand which will continue squeezing spreads, and rising interest rates that will push up LIBOR as much as 100 basis points. The presentation is available here.