063: Understanding Debt and Credit Funds with Michael Episcope

Episode 63: Understanding Debt and Credit Funds with Michael Episcope

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Michael Episcope on the Rise of Credit and Debt Funds in Private Equity

Guest Overview:

Michael Episcope, co-founder and co-CEO of Origin Investments, brings his extensive experience in trading and private equity to the conversation. Twice named one of the top 100 traders in the world, Michael now focuses on investor relations and capital raising at Origin.

Connect with Michael Episcope:

• Origin Investments

Why Listen:

Get expert insights into the growing role of credit and debt funds in private equity and learn how to navigate this investment landscape for steady returns.

Episode Highlights:

• Understanding Credit Funds: Michael explains how credit and debt funds invest in parts of the capital structure that are more protected than equity, offering a more stable income through yield rather than relying on asset appreciation.
• Caution for Investors: Listeners are warned about the risks of inexperienced managers who may rush to invest under the pressure of closed-end funds, potentially compromising returns.
• Consistent Returns: Credit funds, which often invest in senior debt or leverage senior loans, are highlighted as valuable alternatives for investors seeking consistent and reliable income.

Join Managing Tech Millions for a deep dive into the benefits and risks of credit funds in private equity with Michael Episcope!

In this episode, we talk about:

• Track Record and Experience: Evaluating the track record and experience of fund managers is paramount. Investors should seek out managers with a proven track record and a proficient team for deal origination. Understanding the source of deals and the investment strategy of fund managers is essential in assessing their credibility.
• Strategy and Competitive Advantage: Investors must ensure that the fund's strategy aligns with their investment objectives. It is crucial to grasp the competitive advantage of fund managers and how they intend to generate returns. Any deviation from the strategy or lack of alignment with the fund's competitive advantage could pose risks to investors.
• Leverage and Risk Management: Understanding the leverage within the fund's structure is crucial. Investors should inquire about the use of leverage and whether the fund is taking on excessive risk to chase higher returns. Excessive leverage and cross-collateralization can magnify risks during market downturns.
• Fund Size and Diversification: Evaluating the fund size and diversification is vital. A smaller fund size may lead to higher expenses relative to assets, impacting overall returns. Additionally, a lack of diversification within the fund could increase concentration risk and hinder the fund's ability to withstand market fluctuations.
• Expert Advice and Impartial Opinions: Seeking advice from industry experts, financial advisors, or consultants can offer valuable insights during the due diligence process. Engaging with professionals can help investors make well-informed decisions and steer clear of potential pitfalls.
• Patience and Education: Patience and education are fundamental components of effective due diligence. Investors should take the time to study the market, comprehend investment opportunities, and be proactive in decision-making. Rushing into investments due to fear of missing out (FOMO) can lead to suboptimal outcomes.

Episode Timeline:

• [00:02:33] Credit funds in investment portfolios.
• [00:04:27] Loan-On-Loan Execution
• [00:09:36] Understanding risk in credit funds.
• [00:13:35] Understanding cross-collateralization in investments.
• [00:16:14] Cross collateralization in investments.
• [00:19:38] Reinvesting in Debt Funds
• [00:24:31] Balancing portfolio for tax benefits.
• [00:26:56] Diversification in real estate investing.
• [00:30:16] Debt fund risks in investments.
• [00:34:37] Be cautious with new syndication teams.
• [00:38:51] Common sense in investing.
• [00:40:45] Emotional Decisions in Investing.
• [00:43:09] Wealth building through education.

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