Returns, opportunities and market dynamics (roundtable ‘Specialty Finance & Opportunistic Credit’ – part 2)

May 14, 2026

 

Chair: Jason Proctor, Troviq Private Markets Participants: Pascal Böni, Tilburg University   Egbert Bronsema, Aegon Asset Management   Robin Challis, Pemberton Asset Management   Lalantika Medema, PIMCO   Sachin Patel, Neuberger Berman   Srdjan Vlaski, StepStone Group

    

What kind of returns can investors expect from opportunistic credit or specialty finance, and why are borrowers willing to pay more for these types of loans?

Challis: ‘For our more opportunistic funds, we aim for returns over the cycle of 10–14% without leverage. But it varies from case to case, depending on the approach you’re trying to follow. For distressed debt, the return target is higher. The other point to look at is how leverage is applied, as that can significantly influence the return. Borrowers may be willing to pay perhaps 3% more on average if you give them the flexibility for about a year to do something that adds value, for example in rolling out a growth strategy.’
 

In specialty finance, the underlying risk is much more diverse than in traditional asset classes

 
Vlaski: ‘Generally speaking, specialty credit investments currently offer an additional spread of around 150 to 200 basis points compared to a traditional direct lending strategy. For clients entering the specialty credit sector, this premium is attractive because it also offers meaningful diversification away from portfolios of corporate loans and can serve as a partial substitute for private equity exposure. Borrowers are willing to pay higher spreads due to the scarcity of capital available for specialty credit transactions and the complexity involved in assessing these bespoke, asset-backed and structured deals.

Where are the most attractive risk-adjusted opportunities currently, and how has the range of opportunities changed over the past twelve to eighteen months?

Medema: ‘One of the key considerations is that we do not have fixed allocations to the various sub-segments. So, if we see opportunities shifting, we have the flexibility to react fairly quickly and adjust our approach from a sector perspective. We are positive on residential mortgages, particularly in the United States, where we believe the fundamentals in that market remain strong. In the area of residential lending, we believe there may be opportunities to benefit from low Loan-to-Value (LTV) ratios, a strong consumer base and the dynamics of limited housing supply coupled with strong demand. As regards mortgages, the focus has shifted from new mortgage lending to second mortgages and bridging loans. Borrowers with a first mortgage at a low interest rate want to stay in their home, but also gain access to some of the equity they have built up to refurbish or renovate their property. The areas we are further focusing on on the consumer side include student loans and Marketplace Loans (MPLs) for consumers.’

Patel: ‘In the past, about three or four years ago, there was a significant difference in returns between different sub-asset classes and parts of the capital structure. But because a flood of capital has entered the market, those differences have virtually disappeared. This has led us to move away from core asset classes and look more towards opportunistic deals. However, given the macroeconomic backdrop and the political environment, this is changing. I think managers will become more selective, they will price in risks more effectively, and we should see the spread in returns return. So I am fairly optimistic about the coming twelve months.’

Challis: ‘We see opportunities in companies that currently have a syndicated loan, where it can be more difficult to renew those loans in more volatile times. As lenders, we are looking for companies with positive cash flow, so that they can actually repay the principal and the interest due. There has been a lot of talk recently about the software sector, where money has been lent without the necessary cash flows being in place.’

Vlaski: ‘What is often overlooked is that identifying opportunities in the present and allocating capital to funds does not mean that the same opportunities will be available in the next twelve to eighteen months. That is why flexibility in portfolio management is essential. We typically offer our clients two options for reallocating capital. Firstly, we can reallocate commitments and, secondly, we can reposition portfolios via the secondary market, which has become increasingly liquid, particularly in private credit. This flexibility enables investors to actively reposition portfolios and adds an important tool to the investor’s toolkit for capitalising on new opportunities. It represents a more dynamic approach to portfolio management in private markets.’

Patel: ‘We focus on opportunities with very short durations and high returns. We therefore deliberately steer clear of mortgages and infrastructure. Nor do we engage in property, which makes up a large part of what so-called beta managers do, as that is how many larger funds in this sector are managed. We are highly opportunistic and focus on individual assets and individual transactions that make sense in their own right, and will therefore switch dynamically between sub-asset classes to protect the high returns of the underlying assets. We are focused on where we see the best relative value in the very short term.’

Bronsema: ‘Generally speaking, I believe that within specialty finance there is a diverse range of investments that may or may not be suitable for different types of investors. This also means that they must be offered in an instrument capable of providing the desired liquidity to the investor. Transparency towards that investor and regarding the product is of great importance in this regard.’
 

Without leverage, stable returns can be generated that are generally higher than those from traditional assets

 
Medema: ‘In many cases, specialty finance is a good complement to traditional core allocations. I believe that the combination of cash flows with shorter maturities, backing by physical assets, and ultimately differentiated cash flows stimulates investor interest in this asset class.’

Does the current oil situation affect the markets you target?

Challis: ‘The oil price certainly has major consequences, but I do think these can be quantified quickly within portfolios. You can contact all your borrowers, work out how much of their cost base consists of oil, and so on. You can calculate the direct impact of energy costs fairly quickly and see how they are hedged. I think it will take longer for the secondary impact to manifest itself – everything to do with consumption, pressure on consumers and that sort of thing. The question now is: how severe is the damage and how long will it be before prices fall again? Once there is more clarity on that, there will be clear winners and losers, because some countries will perform very well thanks to the high oil price and others will perform poorly. The same applies to companies, depending on their specific sector. We are keeping a close eye on how the situation develops and what the outcomes are, because I think there will be plenty of investment opportunities.’

Medema: ‘Much of what we do, whether in the United States or Europe, is really underpinned by a significant amount of data, stress tests based on a number of different factors, and ultimately by being very careful and disciplined in our approach. We have seen that during periods of extreme stress, everything is ultimately much more strongly correlated than you might expect. From that perspective, having a more diversified pool of collateral is an advantage. Finally, leverage can increase the potential for returns, but it must also be handled with care.’

What is your view on leverage?

Bronsema: ‘In the current market, where interest rates are expected to rise, financing may have become too expensive. If, at the same time, several parties have financed the same assets with debt, there may be forced sales, and that will naturally put pressure on the prices of those assets. As the maturities of assets and liabilities may differ, it is important to align them as closely as possible. So it really depends on the type of asset you actually want to finance with debt. You have to be very careful, not only with regard to lenders, but also by looking at what others are doing in the markets, because you can reach a point where everyone is rushing through the same door, and their collateral, which has been financed with debt, starts to be sold off.’

 

Jason Proctor Jason Proctor is a co-founder of Troviq and a member of the company’s investment committee. Throughout his career, he has focused on investments in private market funds, co-investments and secondary markets, and previously worked at StepStone and Partners Capital.

  

Pascal Böni Pascal Böni is Professor of Practice in Finance & Private Markets at the Tilburg School of Economics and Management, and Managing Director of the Tilburg Institute for Private Markets (TIPM). He is also Associate Professor of Finance at TIAS and sits on several boards of directors, including that of the Swiss Association of Securities Firms. He obtained his PhD in Finance from Tilburg University.

  

Egbert Bronsema Egbert Bronsema is a Senior Investment Manager in the European ABS team and has been with Aegon Asset Management since 2016. Prior to that, he spent 11 years working in the Structured Finance team at IMC Asset Management. Bronsema has been active in the sector since 2005 and holds a Master’s degree in Business Economics and Quantitative Economics from Maastricht University.

  

Robin Challis Robin Challis is Deputy Head of Portfolio Management and Portfolio Manager for the European Strategic Credit strategy at Pemberton Asset Management. He is also a member of the firm’s Credit Review and ESG committees. Before joining Pemberton in 2016, he was Head of Credit Strategy for the Special Situations team at RBS. He began his career at KPMG in London.

  

Lalantika Medema Lalantika Medema is Executive Vice President and Alternative Credit Strategist at PIMCO, responsible for credit alternatives and strategies relating to mortgages and real estate. Previously, she worked in the portfolio management team, focusing on mortgage-backed securities and residential loans. Before joining PIMCO in 2006, she worked at Deutsche Bank, where she specialised in collateralised debt obligations (CDOs).

  

Sachin Patel Sachin Patel joined Neuberger Berman in August 2022 as Managing Director of the Specialty Finance team. Prior to that, he established the Global Capital Markets group at Funding Circle Holdings Plc. Before that, he worked in the Insurance & Pensions ALM Solutions division at Barclays Capital. Patel began his career in the cross-asset structured products division at JPMorgan. He holds an MPhys in Physics from the University of Oxford.

  

Srdjan Vlaski Srdjan Vlaski is Managing Director of the private debt team at StepStone, where he focuses on specialist finance credit strategies and secondaries. Vlaski holds a Master’s degree in Finance from the University of Lausanne and is a Chartered Financial Analyst (CFA).

  

Read the full report in Financial Investigator magazine