At California CLASS, our credit team provides a variety of functions that strive to preserve and protect Participant investments as well as facilitate avenues for liquidity and yield. Through weekly updates, the team provides insights about trends happening in the marketplace, both internally to help California CLASS staff best serve Participants and externally to help equip Participants with the knowledge needed to assist in their daily responsibilities for investing. But what exactly does the credit team do, and why is it important? In this article, we discuss the importance of a credit research team, provide insight into their role within California CLASS, and highlight several themes from their weekly publication, the Monday Musings.
Preserving and Protecting Participant Investments
The mission of the credit team is to preserve and protect Participant investments. The credit team seeks to uphold their mission by analyzing individual companies and sectors, economic trends, developments within the market, and public policy changes. To do so, the team uses publicly available data that is analyzed by the team of analysts across various sectors to uncover insights.
Utilizing publicly available data from a variety of sources (annual reports, earnings calls, economic data, etc.), the team analyzes companies around the current and projected performance of investments. The team evaluates the creditworthiness of potential borrowers through the “five Cs” of credit: Character, Capacity, Capital, Collateral, and Conditions. Through this analysis, the credit team strives to develop a broader understanding of the potential risks in an investment and the ways in which various small risks may be cumulative.
Thorough Discussion of Investment Ideas
The credit team monitors investment counterparties (aka credit issuers) while issuer’s credit fundamentals are analyzed and debated by the Credit Committee. The Credit Committee is comprised of members of the credit and portfolio management teams who meet at least once a month to discuss the potential addition or removal of a counterparty, conduct annual reviews for each approved investment or recommend changes to a specific issuer’s hold code (length of time an investment may be held), and discuss market-related events. The result is an investment set made up of the selected counterparties. Additionally, the credit team uses tenor and concentration limits by sector, geography, and individual issuers, working towards the goal of diversified and developed investment opportunities.
Many factors affect performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. Investment involves risk including the possible loss of principal. No assurance can be given that the performance objectives of a given strategy will be achieved. All comments and discussions presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. California CLASS is not a bank. An investment in California CLASS is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although California CLASS seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.