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Octagon employs a rigorous asset selection process based on fundamental credit analysis and collaborative input from all members of the firm. The firm targets an improving credit profile over a 3-year time frame for loans and over a 3 to 6 month time frame for bonds. Octagon focuses its investment efforts in large corporate debt issuers with ratings of B2/B or higher.
In order to determine appropriate risk-adjusted returns, the investment team analyzes industry dynamics and competitive environments, performance history and prospects, sponsor, management, projected cash flow generation, downside protection, and relative value opportunities within an issuer’s capital structure.
Octagon’s processes facilitate frequent dialogue and action. Constant communication between portfolio managers and investment professionals is critical to the swift identification of attractive investment opportunities and the proactive flagging of creditwatch exposures.
In addition to on-going informal communication, all investment professionals meet semiweekly to discuss transactions currently in the market, weekly to discuss secondary bond opportunities and current bond market fundamentals, and weekly to discuss credits which exhibit recent price volatility. In addition, the entire investment team reviews the complete portfolio quarterly.
Investment professionals utilize numerous information sources to monitor credit exposure: SEC filings, sell-side research reports, Bloomberg, pricing quote sheets from traders, industry conferences, real-time news wire services, and company-sponsored meetings and conference calls. In addition, every asset in the Funds is priced weekly by LoanX and High Yield Advantage.
Octagon focuses on higher quality below investment grade credits. We believe our Funds can achieve attractive returns through leverage inherent in the Funds’ structures, and not through excessive credit risk in the underlying assets. While the composition of each Fund varies, approximately 50% of each Fund’s assets are rated B1 or Ba3 by Moody’s. Asset target hold levels are weighted by internal credit ratings and the asset’s position in the capital structure. We maintain a high level of issuer diversification; within each Fund, single credit exposure is generally limited to 1.5% of the total Fund. Assets identified by Octagon as “creditwatch” are monitored closely and changes to each asset’s risk profile and outlook are documented. Furthermore, all assets are subject to regular reevaluation of their investment theses and risk-return profiles.
Octagon strives to identify investment opportunities in both the primary and secondary credit markets. Our portfolio managers draw on their longstanding relationship with underwriters, agents, and sales and trading desks to provide access to product. Because Octagon’s investment team has a reputation of thorough due diligence, we are often invited to participate in investment opportunities not distributed to the larger credit community. Once identified, investment opportunities are immediately screened by the principal or associate, who determine if the potential investment opportunity merits greater analysis.
The credit analysis is led by the principal or associate, whose focus is centered on several industries. The investment team’s core strength lies in its expertise of the structuring, documentation and distribution of credit-based products. The investment team utilizes industry expertise, discussions with company management, independent research, relative value data, and input from other members of the Octagon team to develop credit recommendations.
An investment recommendation incorporates the business’s competitive position, its ability to generate cash flow, the character of its sponsor and management team, the resilience of the capital structure and the asset’s positioning within it, structural and covenant protection, and the value of the firm’s physical assets in the context of the risk premium offered. The recommendation also takes into account the macroeconomic backdrop, technical supply and demand, liquidity, industry dynamics, and political and regulatory influences. The investment team strives to thoroughly but efficiently extract that data which facilitates both sound and nimble credit judgments.
Each recommendation is accompanied by an investment thesis, which clearly states the reasoning for the recommendation and targets for fulfilling the investment goals. The credit recommendation is supported by a written deal analysis, which discusses the credit’s business and industry, and capitalization profile as well as identifies risks and, ultimately, rationale for the investment recommendation. The recommendation is also supported by financial projections.
The principal or associate verbally presents his or her recommendation to the US Investment Committee, which includes Chairman and Chief Investment Officer James Ferguson, Chief Executive Officer and President Andrew Gordon, Senior Portfolio Manager Michael Nechamkin and Portfolio Manager Donald Young. Portfolio Manager Patrick Steiner, together with the US Investment Committee, makes up the European Investment Committee.
Investment approval requires the affirmative vote of the Executive Managing Member and at least one other Senior Portfolio Manager. Investment allocations are disbursed among each of Octagon’s Funds depending on each Fund's individual needs and restrictions. Importantly, the investment professional maintains ownership of the credit after its approval and is responsible for the on-going monitoring of its exposure in the Funds. |
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| Strong Relationships
Collective Sourcing Roles
Initial Screening Process
Utilize Group Experience |
Led By Principal/Associate
Industry Expertise
Independent, In-Depth Research View
Management Meetings
Collaborative Process |
Written Analysis
Clearly Defined Investment Thesis
Investment Committee Review
Strive for Consensus |
Voting Members Sign-Off
CIO Approval Required
Fund Allocations
Defined Risk Rating /
Position Size Methodology |
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