What Doomer Narratives Miss About Private Credit | John Cocke of Corbin Capital
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Very pleased to be joined today by John Cock, partner and deputy chief investment officer at Corbin Capital. John, welcome to Monetary Matters.
Thanks for having me today.
Wanna set the stage for the audience. Your firm manages roughly $10,000,000,000. A portion of that is in the credit, opportunistic credit as well as private credit. John, I'll just be, you know, honest in how I found you and wanted to do this conversation is I saw a post you wrote on LinkedIn about a month ago, and you said that certain private credit managers are experiencing the reality check that comes with raising capital in pro cyclical evergreen structures. What exactly do you mean by that?
I'm glad to know that somebody reads my LinkedIn, first of all. So to step back, private credit, which has existed for decades, became an alternative asset class sometime post GFC, depending on when you started to look for this as a yield play. That was largely raised in closed end fund structures. In the late twenty tens, some firms started to raise them in private BDCs. There was talk of a private to public arbitrage trying to book multiple expansion and investors would invest in private BDCs that went public. But the public market brings mark to market volatility to an otherwise asset class
So two things I want to highlight. One is the moderately reflexive cycle you have, where it's not just that performance impacts inflows, but also inflows can affect performance, at least in the short and middle term. So private credit performs really well. That attracts a lot of assets. We understand that loop. But also, once it attracts a lot of assets, there's a lot of capital that can be deployed to refinance old loans so the loans look really, really good as they have been on a historical basis.
Yeah. Two different dynamics that both have an impact on returns. One is more denominator effect, right? Like as your fund grows, you have more capital, you buy more loans. Older loans, which might be underperforming, are smaller as a percentage of your NAV. So you look your performance just looks better because the denominator is larger and skewed to newer deals. You also you you could look back over a median deal or an average deal or equal weighted deal and try to get performance out of that way for some of the partners. The second part to your point, okay, 300,000,000,000 entered this asse
Right. So you, your firm, are an operator primarily in asset backed finance as well as non sponsor lending, so lending to companies that don't have a private equity owner. You also do some some sponsor lending, but it's kind of the eye of the storm, I would say, has been from this sponsor lending. So lending to private equity companies. Really the eye of the eye of the storm is private equity owned, sponsor owned software companies. What do you think about how the underwriting process has been? A point that can be made is when you make so many loans, if you have to make a lot of loans, the qua
I think many managers felt that pressure. If you're receiving hundreds of millions of dollars of new inflows every month, and if you don't invest it, you have performance cash drag. They felt that pressure to put the capital to work. They had to buy what is on offer. So interval funds inherently are procyclical because they raise money when performance is good. As they raise money, they have to buy what is on offer. What is on offer is whatever deal is there today. And if the borrower knows that the lenders have to put the money to work, who has the market power? It's not the lenders. All thes
So you've been in private
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