Investment PhilosophyWe believe that non-investment grade, mid-market capitalization companies exist in an inefficient area of the market that is often overlooked by market participants. Such companies provide Polen Capital Credit with a fertile source of investment opportunities. Polen Capital Credit believes that certain segments of the high yield and leveraged loan markets, namely lower rated securities (B rated or below) and securities issued by middle-market companies, are often misunderstood and/or overlooked by many investors and therefore are markedly inefficient. Learn More
For example, many traditional managers of large-cap high yield portfolios, which may have significant minimum investment size criteria as well as more rigid investment guidelines than Polen Capital Credit, do not find it cost-effective to dedicate sufficient resources to cover the middle market segment. Such segment, which Polen Capital Credit believes is less frequently traded and offers smaller investment sizes, is accordingly is not as widely covered by high yield research analysts – both on the buy side and sell side – and fewer brokers make a market trading in its securities. By adhering to a disciplined fundamental-oriented investment process and applying value investing principles to the credit markets through exhaustive financial and legal analysis, Polen Capital Credit seeks to identify and exploit market inefficiencies that arise as a result of such circumstances.
Polen Capital Credit believes that successfully uncovering these opportunities requires financial and credit expertise, extensive portfolio management experience, and keen legal skills. Polen Capital Credit calls on all of these strengths in employing a bottom-up, fundamental-oriented investment approach.
By adhering to our investment philosophy, we believe that we are well-positioned to deliver attractive, risk-adjusted rates of return throughout various market cycles.
Research ProcessFundamental analysis is the cornerstone of the Polen Capital Credit investment process, which itself is designed to generate compelling risk/return investment ideas appropriate for each of our investment strategies. As a bottom-up investment manager, Polen Capital Credit conducts extensive fundamental research and due diligence with respect to each investment opportunity with a goal to identify those companies that have a solid core business, a "reason to exist," and generate sufficient free cash flow to service their fixed income debt obligations. Learn More
The horizontal structure of the Polen Capital Credit research team, in which the firm assigns its analysts coverage responsibilities by sector rather than by asset type (e.g., high yield vs. bank loans), enables analysts to develop meaningful industry expertise, more completely understand the risk/reward profile of potential investments, and identify the most compelling investment opportunities in a company’s capital structure. By focusing on a deep understanding of the risks that affect a target company as a whole and not simply a particular debt tranche, Polen Capital Credit believes that its analysts are better equipped to identify the most attractive leveraged credit investment opportunities across the industries within their coverage universe.
Before choosing to invest in a company, our analysts will typically perform extensive due diligence by seeking out information from various sources, including from company filings as well as through interviews with company management, customers, competitors and suppliers. We also typically:
- Evaluate a target company’s capital structure along with the trading price and relative value of each debt instrument.
- Analyze key financial considerations, such as:
- Liquidity: a company’s ability to service its debt and other obligations over the short term;
- Free cash flow: a company’s ability to service its debt and other obligations over the long term; and
- Asset coverage: overall asset value relative to liabilities incurred through the target class, a critical measurement in gauging downside protection.
- Perform periodic industry reviews to better enable us to recognize the relative value of companies compared with their competition.
Through our exhaustive research process, we strive to assess both management’s capabilities and the target company’s future financial prospects. We leverage our industry network and at appropriate times we seek to develop customized financing solutions for our portfolio companies that provide an attractive risk-reward opportunity for our clients.