Strategies for Implementing Multi-Sector Fixed Income Strategies

A Loan Strategy is an important part of any investment portfolio. When an investor does not understand why a loan is being made, it is nearly impossible to execute the loan using a plan that will return a profit. While there are many different types of strategies that can be used for lending most have their roots in a few basic concepts. Chief among these concepts is the concept of risk and reward.

A strategy seeks to make the best use of risk and reward available in the marketplace. In general, the higher the risk or reward a lender is able to secure the more expensive will be the lender’s interest rate charged to a borrower seeking financing. A Loan Strategy that seeks to make the highest possible return on capital is usually a very risky one indeed. This is why a great Loan Strategy seeks to strike a balance between the two realities. Most importantly, a great Loan Strategy seeks to be superior long-term both in terms of cost and return.

The most important principle behind great Loan Strategies is that the senior portfolio manager and his investment management team should do what is best for the investor and not what is best for the company. For example, an equity financing strategy that involves securing financing through a senior manufacturer may actually harm the bank’s long-term interests as manufactured cars depreciate in value. In this sense, the credit research component of the loan, while important, should be largely divorced from the primary business objective.

The second principle that a principal must commit to when creating a Loan Strategy is that the senior managing director and his investment management team should use what is called a “game plan” in their efforts to secure a loan. What is meant by this is that the Loan Strategy should be a system that involves evaluating the “big picture” – or the overall results a Loan Strategy will achieve. This includes evaluating the investment returns obtained as well as the costs associated with achieving those results. The third and final principle that a financial professional who is trying to acquire a multi-sector loan should commit to is that he and his colleagues should avoid taking on additional debt in an effort to accomplish their goals. As stated above, the ultimate objective of a Loan Strategy should be to create a superior long-term financially solid foundation for the investor.

There are a number of ways for a principal to evaluate and establish a Loan Strategy. One way is for the principal to contact his most senior portfolio manager or the bank loan officer assigned to his project. While the primary goal of contacting the bank loan officer is usually to obtain an updated cost estimate for the Loan Objective, the principal can also use the phone to get more in-depth information about the LTV and the cost savings that could be achieved if he implements his strategy. Another way is for the principal to contact a qualified institutional investor that has direct access to the funds that would make a loan possible. One advantage that the principal may find in contacting a qualified institutional investor is that the investor will be able to provide the principal with a more comprehensive overall picture of the costs of implementing his plan. Once again, the primary objective of the Loan Strategy is to create a superior long-term financially solid foundation for the investor.

It is important to stress that the key to consistently achieving success in the multi-sector fixed income strategies that a principal will implement is to be prepared and persistent. A plan must be developed prior to the start of the implementation process and it must be closely followed. Principal should also look out for negative indications that could indicate that a strategy may be on the verge of failure. Failure to address these negative indicators could mean the difference between success and failure. Finally, the principal should keep in mind that while the internet can be a very helpful tool in terms of finding information regarding investment techniques and methods, the best advice on this subject remains with the professionals.

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