Getting to know Challenger Investment Management – Meet Sid Kumar
May 2023
Sid Kumar, Head of Acquisition Finance, Fixed Income
Sid is the Head of Challenger Investment Management’s Acquisition Finance business with primary responsibility for origination, structuring, execution and portfolio management for acquisition finance deals. Sid has over 15 years experience in high yield credit across investment banking and asset management.
What inspired you to pursue a career in fixed income?
My father was an accountant. As a kid, I used to marvel curiously at him reading the stocks pages in the pink financial newspapers in tiny font and small charts. That got me interested in finance. I also quickly learnt that I was more handy with spreadsheets than a cricket bat (I first aspired to be an Indian cricket player!). From Finance to Fixed Income was just a consequence of courses in business school.
What do you bring to the Challenger Investment Management team?
As Head of Acquisition Finance, I’m responsible for the origination, structuring and management of corporate credit investments while playing a key role in servicing existing clients and raising capital from new clients.
We have a diverse team at CIM with each of us bringing different perspectives. My background comprising 9 years in investment banking and 6 years at Challenger complements my team’s backgrounds in commercial banks, credit funds and internal credit risk. This diversity in team composition is a key strength of ours and helps us think outside the box in unconventional situations, which we see a lot of.
What do you see as the biggest challenge facing investors in private credit right now?
A key challenge in private credit is quality deployment in an environment with patchy deal flow and macro headwinds.
Current market conditions are where incumbent managers have a big advantage. At Challenger Investment Management, we have built up over the years, a portfolio of 95 live borrower investment relationships across corporate credit, ABS and Real Estate Debt which provides us with plenty of deployment opportunities to borrowers who have traded well through the cycle and we have good existing relationships with.
What do you think is the most underappreciated benefit of private markets and what is the most underappreciated risk of financial markets.
The most underappreciated benefit of private markets in my view is the ability to engage with borrowers and influence outcomes. This would be forbidden in public markets where any engagement could be inside information. Through Covid, we had several difficult borrower conversations and it is that ability to engage that facilitated positive investment outcomes for us.
On underappreciated risks, a lot has been written about opaque valuations in private credit but I feel the consequences are underappreciated. While I acknowledge that most Australian private credit assets are illiquid and typically held to maturity, this doesn’t mean their values are immune to movements in credit spreads (e.g. liquid markets B spreads have increased from mid-400s to mid-600s in two years) and credit deterioration (e.g. increase in leverage, erosion of covenant headroom). Besides the obvious risk of overstating portfolio values, this hazard also results in one, overcharging investors management fees and two, open ended funds penalising incoming investors and rewarding redemptions (to the extent redemptions are allowed).
What are you most likely to splurge on?
A Peloton tread. With winter coming, a 3-year old daughter and a busy obstetrician wife, I’m desperate for my exercise to come home to me.