The credit market is returning 8-10% today

I think that people underestimated the strength of the businesses. And I think that you see it in building products. I think that people looked at these building products, businesses and said, we remember the financial crisis. We remember how these businesses suffered in the financial crisis. And it's a lot more expensive to borrow to buy a house today, so they will suffer. That's what happened last time, they will suffer again in the same way. And I think as an example in that space, there's been a lot of consolidation. The remaining players, they're bigger, they have more resources to bring to bear on, to survive the storm, if you will. And they have more market power. It's easier for them to pass on incremental costs if they experience it than they were able to in the lead up to the financial crisis. So I think that a big element is that people have underappreciated the scaling of many of these businesses and the increased resilience that they have.

And then I think that another piece is the strength of the consumer. At the end of the day, the consumer drives the vast majority of the US economy. And with unemployment staying as low as it has, it just sets up the consumer to continue to fuel the economy and keep these businesses earning revenue growth and attractive EBITDA margins.

Why is now a good time to deploy capital, and why is your "keep it simple" approach suited to today's environment?

When we look at returns that are available in loans and bonds today, and for a broad base exposure to just buying the index, you get about 8% in high yield and a little bit over 10% in loans. 

When you look at the returns that were available in those asset classes over the last 10 years, the only moments when those types of returns were available were moments of peak fear. You could get those types of returns at the tippy top of the sell off in the end of 2015 and beginning of 2016. Spreads peaked at a level that you would get those types of high single digit returns.

You could get those types of returns in the sell off at the end of 2018, beginning of 2019. It is been a very small number of moments when you could get these types of returns. And those moments have not been moments where the economy was showing strength and the consumer was showing resilience and unemployment was at three point a half percent. Those were moments when the market was scared. And so I think that what's unique about this time is that you can get an awful lot of return, a much more than has been available for a long, long time. And you can do it with a lot of demonstrated strength in these businesses in the economy. And so that's how we think about it as keeping it simple. You don't necessarily need to be creating the transactions. You don't need to be finding transactions that are hard to understand. Transactions where we've been able to discern some highly differentiated structure that we can pursue.

You can just buy bank loans and high yield. You buy them from the investment banks, you buy them from a trading desk, and you get high single digit, low double-digit return. 

Managed Fund

KKR Global Credit Opportunities (AUD) A

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