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CAPIX: A Pure Play, Institutional Private Credit Portfolio
September 27, 2023
We sat down with Tim Nest, CFA, Co-Portfolio Manager of Calamos Aksia Alternative Credit and Income Fund (CAPIX) to learn more about the private credit market and how the team is seeking to capitalize on the yield and return potential of this global asset class.
Q. Tim, CAPIX launched just a couple of months ago. Tell us how the team has invested the fund’s assets since then.
A. With CAPIX, our goal was to build an institutional-style private credit portfolio—with exposure across the asset class reflective of the quality and breadth of deals our institutional clients have accessed for years. Generally, we expect to invest primarily in senior, floating rate private loans across different corporate sectors and collateral types.
Also, we sought to invest in bilateral private deals, not traded credit. And we’ve targeted accessing these exposures directly. In time, we’ll explore opportunistic investment in private funds (often on a secondary basis), BDCs, CLOs, along with other vehicles but with a focus on minimizing blind pool risk, fees and undrawn capital.
We’re happy with the level of diversification we’ve achieved for CAPIX out of the gate. CAPIX aligns with how we would advise a large institution to build a diversified, income-focused portfolio. In CAPIX, we’ve already partnered with 20-plus leading private credit originators and private credit equity sponsors across many sectors of the market. The portfolio includes thematic and niche areas that we believe add unique value and capitalize on varying market dynamics.
Figure 1. Current Private Credit Portfolio Positioning: Strategy
Data as of 08/31/2023. Based upon total invested and committed capital. Percentages are based on invested portfolio and are subject to change. Portfolio stats are at underwriting. Other includes investments that do not have a strategy classification.
Q. Can you delve deeper into CAPIX’s diversification?
A. Our goal for creating an institutional-style portfolio means that we’re invested across numerous sectors of the private credit market—direct lending, specialty lending, distressed and special situations, real estate credit, real asset credit and mezzanine. But CAPIX’s diversification goes deeper.
Let’s take a closer look at direct lending. There is a tendency to paint this sector with the same brush but it’s a massive market (likely $1T+) with differences in borrower size, PE sponsor, industry, deal complexity and of course geography. We’ve intentionally skewed the initial portfolio towards the upper end of the middle market as we view the relative value to be attractive as we’ve seen. We’ve been excited about opportunities to refinance previously inexpensive syndicated loans with more expensive and better structured private capital.
Figure 2. Current Private Credit Portfolio Positioning: Direct Lending
Data as of 08/31/2023. Based upon total invested and committed capital. Percentages are based on invested portfolio and are subject to change. Portfolio stats are at underwriting.
Q. What’s your view of the deal pipeline?
A. There’s a lot of capacity in the opportunities we are seeing. We’re looking at deals from groups that Aksia has long-standing relationships with—groups that we consider to be premier in the asset class, including specialist private credit originators, private equity managers where we can help support buyouts, real assets and infrastructure type managers, real estate, and the list goes on.
We’ve reviewed a wide range of situations from these partners totaling >$6 billion of direct credits, in addition to traded loans, private credit funds / secondary and other investments. But we are being highly selective—we’re doing just a small percentage of what we see.
Q. Tell us about the market backdrop for private credit.
A. We believe CAPIX launched at a great time for investors. Aksia has a long history in private credit, and we’ve seen that the best times for private credit are when you have a breakdown in the traditional capital markets. The last six to nine months have been challenging for new bank loan and high yield issuance, and the IPO market has been quiet. Private credit is taking more market share as those other markets struggle to regain their footing.
So, that’s great for private credit. But, the flip side is that there’s more risk as interest coverage ratios tighten for legacy borrowers and defaults have ticked up.
Q. How do you manage this risk?
A. It’s pretty simple—we need to be careful and stick to our core tenants – senior risk, diversified and less correlated collateral and downside protections from new and meaningful at-risk equity from the underlying deal sponsor. I also think that CAPIX launched at an opportune time as lender protections are more robust than in recent years. No doubt, in a world with a double-digit cost of senior debt, interest coverage is top of mind – especially for legacy deals.
Q. Can you give us an example?
A. Right now, CAPIX’s largest industry exposure is to software. Technology has tended to be a resilient sector, and valuations have come down since 2021. It’s a good time to be a lender here—the structures and loan documents are more attractive and it’s a sector really impacting most end markets.
Figure 3. Current Private Credit Portfolio Positioning: Industry Weightings
Data as of 08/31/2023. Based upon total invested and committed capital. Percentages are based on invested portfolio and are subject to change. Portfolio stats are at underwriting. Other includes investments that do not have an industry classification.
Q. Do you have any closing thoughts, Tim?
A. Global private credit has provided institutional investors with opportunities to pursue enhanced income and total return, as well as lower correlation. All of us at Aksia are excited to provide private wealth investors with access to the private credit market through CAPIX.
About Tim Nest, CFA
Tim is the Head of Private Credit at Aksia LLC and co-Portfolio Manager of the Calamos Aksia Alternative Credit and Income Fund (CAPIX). Tim has over 23 years of experience in alternative investments with a primary focus in private markets and credit and works with a broad group of global investors focused on the private credit asset class. His team focuses on sourcing, screening, evaluating and monitoring credit-oriented investments accessed across a variety of structures including primaries, co-investments/directs and secondaries. Prior to joining Aksia in 2015, Tim spent several years as a Vice President at Frontier Capital Advisors, a secondary investment firm. Before that, Tim worked for GSC Group, focusing on two credit-based funds including the firm's distressed corporate credit and structured credit strategies. Tim began his career as an Analyst in PwC's Corporate Finance practice. Tim graduated from Boston College with a BS in Finance and Information Systems (dual degree). He holds an MBA in Corporate Finance and Law and Business from the Leonard N. Stern School of Business at New York University with specializations in Corporate Finance and Law and Business.
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