This week we continue our conversation with Tod Trabocco, Managing Director at Cambridge Associates LLC. Cambridge is a leading investment advisor to foundations, endowments, private wealth, and corporations worldwide. Second of two parts – View part one

The Lead Left: With all the funds in the market what can private credit funds do to differentiate themselves?

Tod Trabocco: Most direct lenders have similar return and loss profiles when you adjust for differences like senior versus unitranche or second lien, for example.  Loss incidences in particular are low across the board, so I look for any key differentiating factors.  One easy differentiation is between lenders who finance unsponsored companies and those who finance sponsors.  Within the sponsor coverage model, you have lenders who are “go-to” lenders for a small stable of sponsors and those who actively diversify sponsor reliance.  There are lenders who originate their own exposures, those who focus on participations, and those who do both.

On the underwriting side, there are direct lenders with strong analytical institutional backing in the form of high yield desks, CLO platforms and private equity ownership that enhance due diligence and those who do without. Culturally, some private credit funds are building for the long term, while others have a shorter term view.

And of course, fees are becoming a differentiating factor.

TLL: We’ve seen investors conflate credit strategies as if they were all “private credit.” How do you help them understand the varied risk/rewards?

TT: I’m actually going through this exercise with a large client right now.  Our data and experience help us differentiate the different private credit strategies for our clients.