Commodity Watch: Heterogeneity

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/36adb453-e50e-4c12-a3c7-3906bf7fb8ed/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-v2.jpg?language=en" alt="Ahmad Al Sati v2" title="Ahmad Al Sati v2" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and portfolio manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>Fires move fast. Moderate winds can drive them to 3-6 miles/hour. At that speed, Manhattan would be consumed in under 8 hours if it were a forest. Bad things happen quickly, but there are mitigants. Scientists have discovered that a diverse fauna in a forest increases its fire resistance, allowing it to slow down the fire and to grow better afterwards. In nature, heterogeneity is a plus.</p><p>OK. That is just a fancy word for diversification. But, as in nature, diversification in investments is beneficial. It can help shock-proof portfolios, increase returns and decrease overall risk. The push towards products beyond the 60-40 has partly been driven by their diversification benefits and higher return potential weighed against their lower liquidity. Yet, painting with a broad brush across numerous products can lay traps for investors and is ultimately counterproductive. As in all things, caveat emptor.</p><p>Private Credit (PC) is an example. At $2 trillion, the asset class is now 8x larger than it was in ’10 as it provided capital to an underserved market. PC offered a premium to public bonds, lower public market correlations, relatively high income alongside the benefits of private investing: control over the underwriting, lower volatility and negotiated downside protection. It worked. Less competition helped. So did low interest rates.</p><p>15 years in, the benefits of traditional PC might be reaching their limits.&nbsp;</p><p>1. Diversification might be waning. Per S&amp;P, 77% of buyouts in ’24 deals were financed by PC (see chart below). At a time when PE (Private Equity) funds are increasingly investing in each other’s deals and focusing on the same industries, the sameness by borrower type, collateral and sector may increase correlation across both PC and PE funds.</p><p>2. Recoveries might suffer. The US Federal Reserve (Fed) found that post-default recovery of PC’s 1st lien loans to asset-light businesses in the US was 33% vs. 52% and 39% for syndicated loans and High Yield bonds respectively. Per the Fed, 53% of all PC 1st lien loans in the US are to asset light businesses as PE funds increasingly focus on healthcare and software (volumes in those 2 sectors increased by 6x in last 10 years). Higher for longer rates will not help. Ultimately, the value of your loan (1st lien or not) is determined by the value of your collateral. Hard assets that have known liquidation value, can be sold in the marketplace and are in demand provide a floor to investors (loan to values then actually matter).</p><p>3. Investments have been US centric. As my partner Felipe Berliner stated in a recent podcast, most PC funds were raised in the US for the US (Gemcorp Capital - Gemcast Episode 1: Niche, global or both, the future of private credit). Thus, $30trillion of EM GDP is not being financed for example. If we have a dislocation in the US, low geographic diversity will hurt.</p><p>Looking under the hood, understanding recovery values, portfolio liquidity, counter party exposure and concentration, fund level leverage and true diversification will be key for investors seeking to benefit from alternatives.</p><p><br></p><p><img loading="lazy" src="/getContentAsset/5bdb685f-2d05-4b92-a884-144ae62d2980/cb87803a-320c-480f-ab75-7b9029eaaf79/global-pe-deals-volume.jpg?language=en" alt="Global pe deals volume - graph" title="Global pe deals volume - graph" style="width: 100%" class="fr-fic fr-dii"></p><p>The above is an extract from a LinkedIn post by Ahmad Al-Sati from 15/06/2025.</p>