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.”...
