In a recent fireside chat, John Hartwell Cocke, Partner and Deputy CIO – Credit at Corbin Capital, shared his expertise on private debt and secondary markets. Here are the key takeaways from the conversation:

Background and Evolution of Private Debt: Cocke has been in the industry for 18 years, starting as a banker at UBS and later joining Corbin Capital, which has grown to manage $9.5 billion in assets. The firm’s credit business was established in 2008, focusing on secondary markets, single-asset investments, and co-investments.

Shift from LP to Direct Investing: Cocke emphasized the importance of understanding the assets and processes behind an investment, rather than just relying on a manager’s pitch. Corbin Capital’s approach focuses on the asset side, identifying attractive risk-adjusted returns and owning more of them in their portfolios.

Pattern Recognition and Risk Assessment: Cocke stressed the importance of cynicism in credit underwriting, considering multiple scenarios and potential risks. He highlighted the need to think about not just credit loss but also extension risk, maturity, and potential workouts.

Private Credit Secondary Market: The private credit secondary market has grown significantly, with over $20 billion in transactions last year. Cocke expects the market to continue growing, driven by the increasing size of the private credit market and the need for liquidity. He noted that private credit secondary markets are more anchored to yields and have tighter pricing bands than equity-driven securities.

Drivers of Secondary Market Transactions: Liquidity is the main driver of secondary market transactions, particularly during times of macro stress. Changes in portfolio mandates, investment staff turnover, and convenience also contribute to supply in the secondary market.

Intelligence Gathering and Excess Returns: Cocke emphasized the importance of gathering intelligence and having access to relationships to achieve excess returns in the private credit secondary market. He believes that the people best poised for returns are those who have access and relationships, not just as mercenaries in the secondary market, but also as partners.

Advantages of Being Independent: Corbin Capital’s independence allows it to act as a trusted partner, without competing with its partners or launching competing strategies. This independence enables the firm to have a deeper level of knowledge and sophistication, which is essential for making excess returns.

Growth and Outlook: Cocke is most bullish on specialty finance credit strategies and private credit secondaries, which offer cash flow visibility and longer-term opportunities. In the current higher-rate environment, he would allocate $1,000 to credit strategies, focusing on defensive investments that can preserve capital and generate excess returns.

Key timestamps:

00:09: Introduction to ION Influencers’ Fireside Chats
00:33: Background and Evolution of Corbin Capital
01:23: Transition to Credit Funds
02:14: Overview of the Firm and Investment Focus
02:44: Shift from LP to Direct Investment
03:46: Focus on Asset-Centric Approach
04:55: Implementation of Different Structures
05:56: Focus on Private Credit Business in 2008
08:07: Importance of Diversification in Credit
08:55: Key Question in Underwriting and Risk Assessment
10:44: Evolution of Private Credit as an Asset Class
12:09: Growth of Private Credit Secondaries Market
13:21: Comparison with Private Equity Secondaries
14:58: Education and Stakeholders in Private Credit Secondaries
28:58: Conclusion