In a recent fireside chat, Theodore Qi Shou, Group Chief Investment Officer at Skybound Capital, shared his insights on creating a niche in private credit investing. Here are the key takeaways from the conversation:

About Theodore Qi Shou and Skybound Capital: Shou has nearly 20 years of experience in financial services, with a focus on alternative assets, including private credit. Skybound Capital is a global asset manager with a focus on alternative investments, primarily private credit, and operates across multiple jurisdictions, including Asia, Africa, Continental Europe, and the Middle East.

Evolution of Private Credit: The private credit space has evolved significantly over the past 20 years, with a shift from relationship-driven deals to a more institutionalized market. The market is now driven by underlying assets and capabilities, rather than relationships.

Why Private Credit Remains Attractive: Private credit offers a sustainable source of new opportunities, driven by the tightening of banking regulations and the growth of alternative assets. The asset class provides a solid source of returns, with a focus on diversification and alpha upside.

Track Record and Manager Selection: A manager’s track record is essential when allocating to private credit, as it demonstrates their ability to navigate different market cycles. Smaller managers can offer a more focused and specialized approach, which can be beneficial for investors seeking niche opportunities.

Niche Strategies and Geographic Focus: Skybound Capital focuses on niche strategies, including trade finance, invoice discounting, and SME lending, which offer opportunities for diversification and alpha generation. The firm’s geographic focus is on emerging markets, including Asia, Africa, and Latin America, where there is a greater need for private credit and a more limited presence of large managers.

Competitive Advantage: Skybound Capital’s competitive advantage lies in its dual sourcing capabilities, proprietary deal origination, and technological advancements, including a robust in-house credit assessment and loan management system. The firm’s local knowledge and ability to provide value-added services to borrowers also set it apart from larger managers.

Growth Opportunities and Outlook: Theodore Shou sees more growth opportunities in the non-sponsored space, particularly in trade finance and invoice discounting. The firm is bullish on unitranche and smaller transactions that cannot be easily securitized. Private credit remains an attractive asset class, even in a rising interest rate environment, due to its ability to offer diversification and alpha upside.

Overall, the conversation highlighted the importance of niche strategies, geographic focus, and technological advancements in private credit investing, as well as the need for investors to carefully select managers with a strong track record and competitive advantage.

Key timestamps:

00:09: Introduction to ION Influencers’ Fireside Chats
01:36: Overview of Skybound Capital
02:41: Shou’s Career Evolution and Changes in Private Credit Space
03:47: Evolution of Private Credit and Alternative Assets in Asia
05:05: Transformation of Private Credit over the Last 20 Years
07:25: Importance of Track Record in Private Credit Investing
08:56: Advantages of Smaller Players in Private Credit Investing
11:01: Reassurance for Allocators and Pension Fund Seniors
14:04: Unique Edge and Value Proposition of Skybound Capital
18:22: Identifying Niche in Private Credit Investing
25:34: Differentiation and USP of Skybound Capital
29:20: Growth Opportunities and Market Focus
30:10: Bullish Strategies in Private Credit
30:46: Impact Investing and Investor Alignment
31:20: Interest Rates and Private Credit
32:53: Conclusion