In an insightful ION Influencers Fireside Chat, Jennifer Hartviksen, Managing Director and Head of Global Credit at IMCO (Investment Management Corporation of Ontario), shared her expert perspective on the evolution, challenges, and opportunities in private credit. With over two decades of experience spanning emerging markets, high-yield bonds, and private debt, Hartviksen provided a deep dive into IMCO’s credit strategy, manager selection, and the shifting dynamics between public and private markets.

Key Discussion Topics

1. The Rise of Private Credit: A Structural Shift in Lending

• Bank retrenchment post-GFC has fueled private credit growth, with private debt AUM surpassing $1.5 trillion.
• Blurring lines between public and private credit:
  • Corporations now toggle between syndicated loans and private direct lending based on pricing and flexibility (e.g., Rogers’ recent private credit deal).
  • Private credit solutions are increasingly used for bespoke financing needs (e.g., growth capital, going-private transactions).
• Emerging niches:
  • Asset-backed lending (ABL) is gaining traction.
  • Specialty finance (e.g., music royalties, healthcare receivables) offers uncorrelated returns.

2. IMCO’s Credit Strategy: A Hybrid Approach

• Portfolio Construction: 30% public credit (high-yield bonds, leveraged loans) / 70% private credit (direct lending, infrastructure debt, real assets).
• 30% co-investments to enhance alignment with top-tier managers.
• No legacy constraints: IMCO built its strategy from scratch in 2020, allowing for agile capital allocation.
• Key Differentiator: One team evaluates both public and private credit, ensuring relative value-driven decisions.

3. Manager Selection: What IMCO Looks For

Green Flags:

• Culture of debate: Analysts should challenge senior leaders without fear.
• Consistency in strategy: Managers must stick to their mandate (no “style drift”).
• Strong structuring capabilities: Focus on covenants, downside protection, and equity upside.

Red Flags:

• Hidden losses or reluctance to discuss underperforming deals.
• Overly hierarchical teams where junior members can’t voice concerns.

4. The Future of Credit: Opportunities & Risks

• Tactical opportunities credit: Custom financing for companies unable to access traditional bank loans.
• Macro uncertainty ≠ systemic risk:
  • Unlike 2008 or the 1990s EM crises, there’s no excessive leverage forcing deleveraging.
  • However, higher rates require tighter underwriting (cash flow resilience is key).
• Data limitations in private markets:
  • Public market proxies help, but private credit lacks full transparency.

5. Team & Culture: The Backbone of Successful Credit Investing

• IMCO’s hiring philosophy:
  • Intellectual curiosity > rigid experience.
  • “Individual responsibility, joint accountability”—each deal lead owns their investments, but the entire team vets them.
• Lessons from Brazil’s crises:
  • Volatility creates opportunity—but only for those who truly understand their investments.
  • “Know what you own”: Credit investing is about protecting capital first.

Key Takeaways for Investors

1. Private credit is maturing—no longer just for middle-market loans but increasingly used by large corporates.
2. Flexibility wins: IMCO’s hybrid public/private approach allows for better risk-adjusted returns.
3. Manager due diligence is critical—culture and consistency matter as much as track record.
4. Asset-backed lending and specialty finance are rising stars in private credit.
5. Higher rates = more disciplined underwriting—focus on cash flow durability and covenants.

Final Thought: “Understand What You Own”

Hartviksen’s career-defining lesson—from Brazil’s currency crisis to today’s volatile markets—is that successful credit investing hinges on deep fundamental analysis, downside protection, and a team that embraces debate.

Key timestamps:

00:07 Introduction to ION Influencers Fireside Chat
00:51 Jennifer’s Career Journey
06:01 Establishing a Global Credit Strategy
07:39 Evolving Questions in Credit Investing
08:42 Intersection of Public and Private Credit
12:29 Data Transparency in Private Markets
13:41 Manager Specialization in Credit
16:12 Opportunities in Tactical Credit
17:50 Identifying Red Flags in Managers
20:27 Assessing Team Dynamics in Management
21:09 Strategic Partnerships and Co-Investments
22:11 Building a Strong Internal Team
23:04 Creating a High-Performing Investment Culture
23:43 Adapting Hiring Practices During the Pandemic
24:40 Identifying Relevant Macro Trends
25:19 Recognizing Structural Threats to Capital Markets
26:02 Current Market Conditions and Concerns
26:49 Opportunities Amidst Uncertainty
27:27 Confidence in Capital Preservation