Michael P Guarnieri, Managing Partner and Founding Partner of Evolution Credit Partners, an alternative credit manager focused on leveraged finance and trade finance with a value-driven approach to credit investing, chats to Private Equity Wire about some of the challenges and opportunities in the private credit space…
PEW: In what areas has your firm experienced the most significant growth?
As we build our reputation as a direct lender that can provide creative solutions in this market, we continue to see growth in products that are more custom in nature. The demand for these bespoke solutions has increased as traditional banks have narrowed their lending focus and lowered their risk appetites, and we are increasingly seeing opportunities to deploy capital in areas underserved by traditional capital providers.
PEW: How have client needs and demands changed and what has your response been in terms of your service offering?
Investor demands have evolved quickly over the past several years, both in terms of solutions and operational needs. On the investment side, investors are increasingly looking for niche products with strong potential for alpha generation. Differentiation is key to LPs as they continue to add opportunistically to their portfolios in this unpredictable climate. In terms of underwriting generally, the process has been extended and GPs are holding borrowers to much higher standards. At Evolution, we continue to innovate around our core product offerings to ensure that our capital solutions are both flexible and relevant and tailored to our clients’ specific needs.
PEW: What are your business objectives for the year ahead and how do they align with the needs of your clients?
As always, the needs of our clients inform our objectives for the year ahead. Notably, we will look to continue to scale our products, and grow both our sourcing channels and expand our trade finance strategy.
Additionally, we will continue to invest in the growth of the firm’s infrastructure, adopting new technology tools and expanding our headcount. Our overarching goal is to continue to bring new products to market and tactically approach the credit market with innovative capital solutions.
How can you best ensure you deliver value-add to your client base?
Most importantly, you have to listen to your client and understand their objectives or challenges. Investing clients want attractive risk-reward investment strategies that are not correlated to the rest of their portfolio while borrowers need flexible, structured capital to support the growth or recovery of their portfolio companies.
As an alternative credit manager, our main goal is to deliver diversified, uncorrelated returns to our investors. We focus on capacity constrained markets with significant barriers to entry where we can produce alpha for our investors. On the sourcing side of the business, we provide customised, flexible working capital and acquisition financing solutions to our clients, whether they are sponsors, corporates or insurance brokers.
PEW: Could any shift or change influence the potential growth in the industry?
It is the nature of our industry to be constantly evolving. At Evolution, we take this to heart, and are always innovating and adding synergistic credit strategies to our platform. Our two main strategies are leveraged finance/direct lending and trade finance.
Twenty years ago, direct lending was a nascent strategy that had yet to be widely adopted. Today it is a fully developed investment strategy, with firms around the globe offering liquidity to help clients achieve their business objectives. Over the years, we have learned that there is no “one size fits all” solution, instead stressing the importance of providing private equity sponsors with custom, bespoke solutions.
Much like the direct lending space two decades ago, trade finance is in its early stages. For several reasons, banks have limited interest and capacity to provide working capital solutions to concentrated, high yield companies. Our trade finance strategy, which focuses on non-investment grade/high yield credits, helps fill that void, and provides both buyers and sellers with tailored short-and medium-term liquidity solutions that are compelling and easy to access. We believe that this area will continue to evolve and provide the market with new sources of liquidity, and we are seeing more and more companies continue to seek alternative sources of liquidity and capital. We believe that the trade finance market is a compelling part of direct lending that will continue to be a meaningful subsector of the direct lending future growth.
Michael P Guarnieri, Managing Partner and Founding Partner. Evolution Credit Partners – Michael has more than 36 years of experience investing and lending to leveraged companies, both private equity sponsor backed and corporate borrowers, and analysing credit and market risk during numerous credit cycles in the high yield, distressed and structured credit markets. His experience includes investing, pricing and structuring loans and bonds over numerous credit cycles with a deep background in credit research, having been a credit analyst and a research director throughout his career.
