June 25, 2019 - Last week, the LSTA returned to Tel Aviv to participate in back-to-back conferences sponsored by DC Finance. The first was geared to family offices and high net worth individuals (“HNWI”) and the second to institutional investors. Why Tel Aviv? Israeli investors are intrigued by U.S. leveraged loans for a number of reasons. On the family office/HNWI side, many Israelis have recently sold very successful third generation businesses and are seeking ways to invest, as are owners of start-ups that have been sold or gone public. On the institutional side, the Israeli economy has been very robust for a number of years with high tech, health care and tourism leading the way. And, 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 all these investors 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 was the focus of the two panels? Like many investors, both domestic and global, Israeli investors have been reading news reports suggesting that the U.S. leveraged loan market is systemically risky and LSTA General Counsel – and moderator – Elliot Ganz asked the panelists to address that narrative directly. The panelists explained that the loan market was actually less systemically risky than before the financial crisis because of a much more stable investor base, including the reduction in mark-to-market investors, and a significantly lower bank underwriting pipeline. The panel also demonstrated the long-term stability of the loan market over a twenty-year period and detailed why the loan market outperformed other fixed income markets in the fourth quarter of 2018. Bottom line: While documentation terms 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 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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Membership in the LSTA offers numerous benefits and opportunities. Chief among them is the opportunity to participate in the decision making process that ultimately establishes loan market standards, develops market practices, and influences the market’s direction.