Brian Stewart, Global Co-Head of Corporate Credit, believes that experience across market cycles isn't just a nice to have when evaluating private credit managers – it's fundamental to how these strategies perform when conditions change.
Risk management in private credit goes well beyond picking good credits. It rests on three pillars: infrastructure sized for worst-case scenarios, not optimal conditions; data and early warning systems to support re-underwriting the portfolio through an independent team; and proactive partnership, so issues are addressed before they become crises.
Watch to see how the three pillars work together in practice.
Brian Stewart:
Here's a statistic that tells a story. Within Fortress's direct lending business: our annualized loss ratio since 2016 has been 0.02%. The industry average is 0.9%.
That's not luck. We believe that's the result of a systematic approach to risk management that's been built over 25 years. Experience across market cycles isn't just a nice to have when evaluating private credit managers. It's fundamental to how these strategies perform when conditions change.
Let me walk you through how we think about risk management at Fortress because it goes well beyond just picking good credits. First, our infrastructure. We learned during the global financial crisis that you have to size your asset management team for worst case scenarios, not optimal conditions.
Second, data and early warning systems. We don't just manage credits after problems arise, we actively re-underwrite our portfolio. This is done by our asset management team, independent from the original underwriters, so there's no bias toward hiding mistakes or avoiding criticism. This data collection also helps us spot broader trends. For example, we identified labor inflation issues in the healthcare sector back in early 2022. That reinforced our decision to remain underweight that sector.
And third, proactive partnership. Asset management ensures early communications to address issues before they become crises. We're in the relationship business and our goal is optimal outcomes for all parties. The result, we can maintain origination activity even during volatile periods because our dedicated asset management team is already working with borrowers.
This approach has been tested through multiple cycles: the global financial crisis, COVID, and recent market volatility.
