In a recent ION Influencers fireside chat, Elad Shraga, Founding Partner and CIO at Signal Capital Partners, shared his insights on the outlook for private credit in the European middle market. Here are the key topics discussed during the engaging conversation:

Background and Founding of Signal Capital Partners

Elad Shraga began by sharing his professional journey, highlighting his tenure at Deutsche Bank where he led the global structured finance team. He explained how Signal Capital Partners was founded in 2015 by a team of former Deutsche Bank colleagues, with a focus on offering differentiated returns to investors through European-focused, asset-backed investments in the middle market.

Market Cycles and Investment Experience

Shraga reflected on the various market cycles he has witnessed since the late 1990s, including the dot-com bubble, the global financial crisis, and the COVID-19 pandemic. He emphasized the importance of experience in navigating financial stress and assessing risk, noting that understanding the non-stationary nature of risk is crucial for downside protection.

Investor Concerns and Downside Protection

The discussion touched on the primary concerns of institutional investors, such as insurance companies and pension funds. Shraga highlighted the significance of downside protection and asset-backed structures in mitigating risk. He shared that Signal Capital Partners has successfully managed 56 deals since inception, with only three resulting in real losses, demonstrating the effectiveness of their approach.

Team Composition and Training

Shraga described the unique team structure at Signal Capital Partners, which features a reverse pyramid with more experienced partners than junior analysts. This structure allows the firm to leverage the extensive experience of senior team members in both macro and micro-level investment decisions. He also discussed the importance of adapting the team’s skill set to match the evolving opportunity set in the market.

Deal Sourcing and Technology

The conversation delved into Signal Capital Partners’ proprietary deal sourcing methods, which rely on the seniority of team members and advanced technology tools. Shraga explained how the firm uses big data to uncover opportunities that fly below the radar, particularly in localized markets that are often overlooked by larger asset managers.

Sector Focus and Investment Opportunities

Shraga expressed optimism about specific sectors, particularly retail real estate and transitional energy. He noted that the retail real estate sector has become more investable post-COVID, with clearer distinctions between winners and losers. In the transitional energy space, the exit of traditional capital providers has created lucrative opportunities for flexible and creative financing solutions.

Outlook on Private Credit

Finally, Shraga shared his outlook on the private credit market, acknowledging the ongoing consolidation and the need for careful liquidity management. He observed that while the illiquidity premium in public markets has decreased, driving more capital into private credit, the current wave of private credit investment is nearing its end.

Conclusion

The fireside chat with Elad Shraga provided valuable insights into the dynamics of private credit in the European middle market. His experience and strategic approach to investment, team management, and deal sourcing highlight the innovative and disciplined methods employed by Signal Capital Partners to navigate and capitalize on market opportunities.

Key timestamps:

00:09 Introduction to the Fireside Chat
02:44 Market Cycles and Historical Context
04:20 Investor Concerns and Downside Protection
07:07 Team Structure and Training
10:17 Capital Allocation and Deal Underwriting
10:57 Sourcing Mechanisms and Proprietary Insights
14:35 Data Utilization and Market Trends
17:20 Repeat Business and Client Relationships
18:49 Focus on Smaller Deals and Market Gaps
20:44 Defending Competitive Advantage
23:28 Identifying Promising Sectors
25:28 Outlook on Credit Business
27:52 Conclusion and Acknowledgments