At recent private credit conferences we’ve been asked how managers think about portfolio construction. The answer depends on your experience over the past twenty-two months.

Covid clearly threw a wrench in investors’ business assumptions. As one private equity partner told us, “we had a base case and a down-side case, but we didn’t have a no-revenue case.” Once operators developed a plan to deal with closures, it became an issue of matching funding with recovery expectations.

Consumer-facing sectors had a rough time early on, but patterns were quickly established. The toll on small retailers, particularly restaurants, was devastating. Defensive B2B businesses managed better, and in some cases, thrived. Post-vaccine regimes supported the consumer side as people edged back to work and (as one economist put it) “having fun.”

Today, almost two years on, crosscurrents are at work. The Omicron variant threatens to upset reopening scenarios globally, roiling capital markets. Too early to tell whether this strain will mimic Delta, disappear (like Mu) without a ripple, or become a different brand of nasty.