Investment Model
AGL is a fundamentals based long-term investor with a three-part investment model targeting safety plus robust risk adjusted cash returns across all phases of credit cycles and market conditions.
AGL's Investment Objectives
- Defensive “all-weather” annuity-like cash-on-cash absolute return
- Preservation of invested capital through minimal loss incidence and dispersed over time if incurred
- Alpha contribution to asset class from superior risk-adjusted returns
AGL’s Differentiated Three-Part Investment Model:
Eligibility criteria:
- Ability to repay at par under market duress
- Appropriate risk adjusted return
- Acceptable structure and documentation
Enabled by proprietary private-side (non-public) analytics:
- Access to private-side information including five-year projections
- Constant dialogue with portfolio company management and financial sponsors during life of investments
- Bank-like underwriting approach and “DNA”
Approach to Portfolio Balance Currently has 10 Dimensions
- 1st D: AGL Credit Rating. Each borrower assigned an AGL internal rating to reflect its credit risk
- 2nd D: A-B-C Sensitivity to Cycles. Classify a borrowers’ sensitivity to business cycles as a-recessionary “A”, beta “B” and cyclical “C” and maximize “As” to reduce sensitivity thereto
- 3rd D: 1-2-3 Intra-Portfolio Correlation. Identify and overweight idiosyncratic business model characteristics to reduce intra-portfolio correlation and maximize heterogeneity
- 4th D: Industry Weightings / Exclusion. Favor growing and stable industries and avoid contracting ones
- 5th D: Position Size. Create more uniform position sizes over time to target levels based on internal risk ratings and risk-adjusted returns
- 6th D: Age of Credit Origination. Favor shorter average portfolio lifespan as a borrower risk profile statistically increases with passage of time
- 7th D: Borrower Enterprise Value. Credit risk can diminish with increasing company size
- 8th D: Surveillance Population. Monitor credit quality migration metrics including interest coverage, loan to value and EBITDA rate of change
- 9th D: Sponsor Assessment. Consideration of PE firm’s history as steward of debt capital
- 10th D: Reserve Level. Build reserves to offset potential credit costs
Highly Proactive Portfolio Management
- Portfolio composition constantly reassessed and repositioned
- Risk actions as warranted
- “Reserve” maximization via Original Issue Discounts (“OID”)
- Risk adjusted optimization for liquid loans