At NYCLASS, our credit team provides a variety of functions that are fundamental to preserving and protecting Participant investments as well as providing avenues for liquidity and yield. Through weekly updates, the team provides valuable insights about trends happening in the marketplace, both internally to help NYCLASS staff best serve Participants and externally to equip Participants with the knowledge needed to fulfill their daily responsibilities for investing. But what exactly does the credit team do, and why is it so important? In this article, we discuss the importance of a seasoned credit research team, provide insight into their role within NYCLASS, and highlight a few important themes from their weekly publication, the Monday Musings.
Preserving and Protecting Participant Investments
The mission of the credit team is to preserve and protect Participant investments; to accomplish this, the team has a deep understanding of and manages credit risks by analyzing individual companies and sectors, economic trends, developments within the market, and public policy changes. To do so, the team uses publicly available data that is analyzed by the team of skilled analysts who leverage extensive professional experience across various sectors to uncover unique insights.
Utilizing publicly available data from a wide variety of sources (annual reports, earnings calls, economic data, etc.), the team thoroughly analyzes companies to understand both the current and projected performance of investments. The team gauges the creditworthiness of potential borrowers through the “five Cs” of credit: Character, Capacity, Capital, Collateral, and Conditions. Through this analysis, the credit team develops a broader understanding of the potential risks in an investment and the ways in which various small risks may be cumulative.
Thorough Discussion of Investment Ideas
The credit team vigilantly monitors each investment counterparty (aka credit issuer) while each issuer’s credit fundamentals are thoroughly analyzed and debated by the Credit Committee. The Credit Committee is comprised of members of the credit and portfolio management teams who meet at least once a month to discuss the potential addition or removal of a counterparty, conduct annual reviews for each approved investment or recommend changes to a specific issuer’s hold code (length of time an investment may be held), and discuss market-related events; their process ensures that all possibilities have been considered and all necessary questions have been asked. The result is an investment set made up of the highest quality counterparties. Additionally, the credit team imposes tenor and concentration limits by sector, geography, and individual issuers, resulting in diversified and thoughtfully developed investment opportunities.
The NYCLASS credit team has a consistent track record of acting ahead of rating agencies and market participants. While 2020 presented unprecedented challenges, the credit team successfully removed a number of names at risk of a rating downgrade from their approved list well before rating agencies. This was accomplished through thorough examination and debate of potential investments, leveraged by analytical tools, and the ability to act well before a downgrade occurs.
2020 Trends and Insights
When the credit team started publishing their weekly Monday Musings to the Public Trust blog (NYCLASS administrator and investment advisor) in November of last year, no one imagined just how timely and transparent their insights would be in 2020, a year forever changed by the ongoing COVID-19 pandemic. The weekly posts featuring two to four bullet points focus on relevant happenings in the U.S. and global markets. While themes of COVID-19’s impacts on different industries, countries, and economic data have dominated the Monday Musings for most of this year, the credit team also provides valuable insights on international events and economies, OPEC+ negotiations and oil prices, bank earnings, and more. Their insights help investors stay informed of pertinent global happenings while providing high-level context through the eyes of a seasoned credit research analyst. If you’d like to receive the credit team’s weekly thoughts directly to your inbox, please fill out the information below to sign up for our email list.