Capital Solutions

Understanding the Breadth of Investment Opportunities in Capital Solutions

May 2023 – 8 min read

Capital solutions constitute an increasingly popular investment category that seeks to provide equity-like returns with less correlated market risk throughout the credit cycle.

“Capital solutions” is a term that has become increasingly popular as a way for asset managers to describe flexible, often credit-focused strategies that provide investors access to unique or bespoke deal flow and investment opportunities. But it’s not always easy for investors to wade through a sea of varying definitions to get to the core of what a manager actually means when they describe their strategy. In this paper, we provide insight into the rationale for capital solutions strategies and background on why they are gaining so much traction in the market today. We also describe how we, at Barings, define our Capital Solutions strategy and where we expect to see particular opportunities in the years to come.

The history of capital solutions strategies and distressed debt strategies is almost indistinguishable. A decade ago, even as far back as the financial crisis, these more credit-focused “opportunistic” strategies were almost entirely focused on buying broadly syndicated loans and bonds at discounts for a pull to par trade, or looking for opportunities to restructure a company’s balance sheet and swap debt for equity to achieve targeted returns. But much has changed since then. The massive growth in private credit markets, combined with structural changes in public markets, have created new opportunities to use creative financing structures that go beyond buying discounted public debt or swapping debt for equity. Moreover, while distressed debt strategies of the past often were more appropriate late in the business cycle, the market today offers a compelling range of investment opportunities throughout the entire cycle. The objective of this more comprehensive approach is to generate equity-like returns through a diverse universe of credit opportunities—both public and private—that should be less correlated to traditional equity and fixed income markets.

In terms of portfolio positioning, a capital solutions offering today can be viewed as complementary to existing public and private credit strategies. While much of capital solutions’ appeal results from a potential to generate equity-like returns, its investments largely lie along the credit spectrum and may be more appropriately considered an extension or enhanced variant of traditional direct lending or private credit.

Want to read the full article?

View PDF

Bryan High

Head of Global Private Finance

Stuart Mathieson

Head of Europe & APAC Private Credit & Capital Solutions

Michael Searles

Managing Director, Head of North American Investments, Capital Solutions

Any forecasts in this material are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed by Barings or any other person. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Any investment results, portfolio compositions and or examples set forth in this material are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this material No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments. Prospective investors should read the offering documents, if applicable, for the details and specific risk factors of any Fund/Strategy discussed in this material.

Barings is the brand name for the worldwide asset management and associated businesses of Barings LLC and its global affiliates. Barings Securities LLC, Barings (U.K.) Limited, Barings Global Advisers Limited, Barings Australia Pty Ltd, Barings Japan Limited, Baring Asset Management Limited, Baring International Investment Limited, Baring Fund Managers Limited, Baring International Fund Managers (Ireland) Limited, Baring Asset Management (Asia) Limited, Baring SICE (Taiwan) Limited, Baring Asset Management Switzerland Sarl, and Baring Asset Management Korea Limited each are affiliated financial service companies owned by Barings LLC (each, individually, an “Affiliate”).

NO OFFER: The material is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service in any jurisdiction. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This material is not, and must not be treated as, investment advice, an investment recommendation, investment research, or a recommendation about the suitability or appropriateness of any security, commodity, investment, or particular investment strategy, and must not be construed as a projection or prediction.

Unless otherwise mentioned, the views contained in this material are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Individual portfolio management teams may hold different views than the views expressed herein and may make different investment decisions for different clients. Parts of this material may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this material is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any service, security, investment or product outlined in this material may not be suitable for a prospective investor or available in their jurisdiction. Copyright in this material is owned by Barings. Information in this material may be used for your own personal use, but may not be altered, reproduced or distributed without Barings’ consent.

Related Viewpoints