9Questions is our Q&A series featuring key decision-makers in the corporate credit markets — get in touch if you know who we should be talking to!

After 20 plus years in banking on the sellside at firms like UBS and BNP Paribas, Cecile Retaureau has found herself on the investor side at Phoenix Group.

For the past year as head of private markets at the London-based insurance company, which manages £290bn of savings and investment money, Cecile has been responsible for private markets allocation across real estate, infrastructure, private and corporate credit, and private equity.

She said that decades of experience in structured credit alongside a few financial crises have positioned her well for this role, one that requires discipline as an LP in an overcrowded market.

1. It’s been around a year since you moved to the buyside, what has been the biggest learning curve so far?

The floors are much quieter compared to my past 20 years on noisy trading floors! I was surprised at how fast paced the buyside is though. Phoenix is embracing change and navigating large critical projects. Leading the investment team in private markets requires different navigation tools than in my previous sellside job.

Managing a new team and positioning the team across the whole private markets origination and investment spectrum has its challenges. We did restructure the team in three divisions: private credit, real assets and I set up a new structured credit division here in Q4 last year, to accompany the market boost in such products.

It’s been eye opening to see that four in 10 people are not saving enough for retirement. In the UK, the Department for Work and Pensions said that around 45% of working-age adults are saving nothing.

This could be a train crash if private capital doesn’t come to the rescue to support the UK defined contributions saving pot, on top of already delivering efficient returns on the back of the annuity businesses and liability matching, for defined benefits pension schemes.

2. Private credit is becoming a very crowded market, how do you source the right investment opportunities?

With the volatility seen this year and dislocation in the public markets, it’s even harder to source and invest into the right private markets trade that will get you the right illiquidity premium on top of what is comparable in public markets.

For example, that premium was almost non-existent in Q1 in vanilla private credit. It has come back in Q2 and Q3. What we’ve done this year in private credit is to focus on a few trades that were bilateral or small clubs as opposed to large syndicated trades in the US, Europe, and the UK.

We’ve even walked away from trades at execution where covenants were insufficient in the final documentation, which tells you we won’t shy away if we’re not happy with the structure of a deal. A focus is building relationships with borrowers and obtaining sufficient downside protection. 

Most of what we do there is through direct origination and direct execution, which is a turnaround from three years ago when we were mainly looking at investment grade private credit trades via asset management partners.

3. What are the most important metrics you look at when it comes to selecting managers?

Diversification is key and we try to diversify across sectors, borrower type, and geographies, so we know more or less where we are willing to invest. This year we have executed quite a bit in utilities on the back of the energy transition megatrend, where we look at the best credit quality names not only in the UK but in Europe too. In executing bilateral trades, it allows us to get bigger tickets which gives us more control in the transactions structuring and is the type of win-win we’ve looked to do.

4. How does consolidation in the market affect you as an LP?

We want to maintain our full hybrid origination and investment model, where we can lend directly, rely on existing asset managers, and also look at separately managed accounts with new managers as we expand in the market. There is a clear advantage in relying on external expertise from partners in markets where you’re not present or where there is cyclicality.

5. How is the expansion of private credit into the retail investing pool affecting an LP like yourself?

The expansion of private credit from institutional investors to wealth and retail clients are proof of the increasing competitiveness of such asset class and is a trend that is here to stay — private markets are no longer that illiquid and aren’t a ‘dangerous’ market.

Retail investments have usually been heavily regulated so the solutions proposed there can be slightly different from ours but we can leverage an alternative manager’s retail or wealth solutions.

As we are still small in size when it comes to defined contribution investments in private markets, where we invest through our joint venture Future Growth Capital, we can opt for an LP investment in a large private equity commingled fund or we can equally choose funds of funds and SMA structures that were developed by such private equity firms for wealth and retail investors, which would welcome smaller investment clips.

6. Returns on private credit investments are starting to plateau, how do you adjust your strategy accordingly?

Private credit has been a good outperformer overall, although the market has struggled a bit with the lack of M&A activity. The lack of M&A has triggered high dry powder available at direct lending funds level, meaning they are not investing all of the capital they can.

This is where the risk is further dislocation between tier one and bottom tier players’ performance. But it also doesn’t mean a change in strategy for us. It is important we enhance our due diligence on the manager we select because of this performance dislocation.

We have not changed our main investment strategy in our defined benefit scheme annuity book. 

The goal is to continue to diversify and lock an attractive return and illiquidity premium. We will continue to expand geographically, we have done our first deal in Australia, and next year, investment grade transactions in emerging markets will be a focus. So I definitely see us ramping up in private credit as opposed to ramping down.

7. What has your 20-plus years on the sellside at banks allowed you to bring to this role at Phoenix?

My background is non-investment grade and structured credit so I’ve lived through quite a few crises and definitely evolved through a volatile environment. Having seen the worst case many times, for me it is always going back to the credit fundamentals, such as spending a lot of time building relationships with borrowers, investing time in negotiating docs and downside protection. 

What I'm trying to bring from 20 years or so in investment banking structuring is to not fear complexity. Sometimes it's better than illiquidity because you can get a better risk reward and actually higher quality credit.

8. How does Phoenix’s commitment to net zero affect your investment strategy?

Sustainable and productive transactions are a key part of our investment strategy. In our annuity book, between 50% and 70% of all investments executed annually need to qualify as sustainable transition assets or productive.

As of today, we’re close to 84%. We are part of the investment delivery forum and also have a roadmap for us to invest £40bn in sustainable and productive assets globally over the next 10 to 20 years which we do monitor. We are trying to win transactions in markets where sustainability is a necessity, as opposed to something that politically can disappear from one year to the next.

9. What is the most interesting story you see playing out in private credit over the next six months to year?

On top of megatrends like digitalisation, energy, demographics, which are driving the investment opportunities in private markets today, next, it’s all going to be about asset-backed finance. We see lenders who were mid-market corporate lenders expanding rapidly into asset-backed finance, which is addressing the gap of how we finance the real economy.

But this is where you can also go a bit risky. We are going to watch in the next six months who is expanding in asset-backed finance in a behaved way and who is going too wide in the underlying spectrum.

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