Inside the Mind of Pratik Joshi: Private Debt Portfolio Manager, Revolution Asset Management

In this Q&A, Pratik Joshi shares his journey from early investment discussions with his father to overseeing a diverse private debt portfolio in Australia and New Zealand. He reflects on his career path, insights into the market, and his dedication to continuous learning.

1. How did you get started in fixed income investing and specifically private debt?

My foundations in investing started from dinner table conversations with my dad who was a lifelong investor and career banker turned stockbroker. Based on this foundation, I decided to pursue a career in finance after gaining requisite analytical skills through my engineering education followed by an MBA, where I was introduced to the world of finance and had the opportunity to put my skills to use as a fund manager of the university’s student fund. My desire for global perspective across traditional and alternative investments led me to earn both the CFA, USA and CAIA charters.

The real learning came from the experience I gained working on 100+ deals across different geographies during my 14 years of banking experience in corporate debt, project finance, securitisation and illiquid structured debt capital in global organisations such as HSBC, Bank of America and Moody’s. The credit, structuring and origination skills I gained in these roles have been invaluable in my current role.

Being an investment professional is a lifelong journey of learning, and I am fortunate to be surrounded by astute investment professionals who share this same passion for learning and the markets.

2. Your portfolio focus is primarily on the Asset Backed Securities (ABS) and corporate Leveraged Buyout Loans (LBO) sectors. How do you identify potential investment opportunities within the Australian and New Zealand private debt market?

Identifying investment opportunities in ABS and LBO is as much art as it is science. As two very diverse areas of the private debt universe, deals are primarily sourced through a vast network of strong long-standing relationships and regular conversations with market participants, such non-bank originators, senior financiers in warehouses, sponsors, advisory firms, arrangers etc.

For LBOs, we focus on senior secured debt with covenants and no interest capitalisation primarily in well regarded sponsor backed business which are in non-cyclical defensive industries, are high quality positive cash flow generating businesses with stable demand and cost drivers, as well as being sector leaders within their respective industries. My role involves meticulously reviewing all due diligence documents and incorporating the findings into financial models followed by extensive downside scenario analysis to assess potential risks and incorporate appropriate mitigants into the loan structuring process.

For ABS, my focus is on well-capitalised non-bank lenders with a long history of originating the loans that are pooled into a bankruptcy remote trust – a legal structure designed to protect assets from being affected by the insolvency or bankruptcy of its sponsoring entity. I structure ABS investments to provide protections such as triggers, covenants, cash flow seniority and first loss tranche held by the non-bank sponsor as a risk retention mechanism. I use static vintage analysis to evaluate historical performance to determine loss rates/timing etc. I then use these inputs in a cash flow model combined with structural protections mentioned above to arrive at rating which drives the price for risk undertaken.

3. That is very specialised, could you delve deeper into ABS and why you like it for your private debt portfolio?

ABS are investments backed by a pool of loans such as home mortgages, car loans, or personal loans. These loans generate monthly interest and principal repayments, which are used to pay back investors of these securities. This process, known as securitisation, divides the securities into different levels or ‘tranches’ based on risk appetite and return requirement of investors. Revolution primarily invests in mezzanine notes of private warehouse facilities. Warehouse financing is vital for non-bank lenders since these lenders lack access to public deposits or capital markets like traditional banks do. It provides these lenders with the funding they need to keep originating new loans. These facilities have strong structural protections, and we monitor performance through periodic reporting. These robust protections, combined with the credit premium for illiquidity, make ABS warehouse investments highly appealing for our portfolio from a risk/return perspective. You could learn more about our investment philosophy here.

4. Managing risk is crucial for Private Debt investment managers. How do you incorporate it in your day-to-day work?

Risk is not to be managed when it knocks on the door. Risk management is imbibed in every thought process and action I take throughout my day.

First principles for success include delivering on our promised return objective and preserving capital. Whether it is an LBO or an ABS deal, identifying risks, understanding inherent mitigants or including structural mitigants while appropriately pricing the risk undertaken and avoiding the risks that do not fall within the promised credit selection criteria even at any price is the key. I closely monitor portfolio investments, which helps me identify any early warning signs of stress or emerging risks, and converse with borrower to mitigate it ahead of any issue evolving.

5. You mentioned passion for reading. Would love to know which is your top favourite non-fiction and fiction book.

Non-fiction: ‘Fooled by Randomness’ by Nassim Nicholas Taleb comes to mind. It focusses on stochastic thinking in every aspect of life including investments. As a researcher in quantum computing before building a career in finance, my favourite observation from Taleb’s book is “things that happen with little help from luck are more resistant to randomness”, which when you think about is as true for success as private debt investment manager as it is for any aspect of our lives.

Fiction: I think ‘1984’ by George Orwell moved me the most. Few fiction books give such impeccable lessons which are even more relevant today than ever before.

6. What’s the best piece of investment advice you’ve ever been given?

I am not sure of the original source of this advice; must be for the ages I reckon. My dad always said that:

“When investing or lending money, one’s success depends on understanding the borrower’s business as well as they do”.

Strangely but not surprisingly, I end up doing exactly that every day and on every deal that I have invested in so far. Invariably my comfort comes from my improved understanding (of the businesses that we lend to) approaching as close as possible to that of the ones running these businesses.

7. That’s simple yet effective advice. Let us finish things off with a quick fire round of questions.

Cricket or AFL: Cricket, specifically test cricket as I love the resilience and consistency one needs to demonstrate through the five days to win a test match.

Camping or glamping: Camping.

Road trip or flying: Road trips, allows to enjoy the journey rather than rushing to the destination.

Integrity or Productivity: Integrity at the centre of everything. Productivity is important in its own right but can’t stand the test of time without integrity.

Last one and a difficult one: Sydney or Melbourne: Sydney is my home so it’s a straight pick for hundreds of reasons. However, I must admit that Melbourne never disappoints when it comes to sports, arts, food and coffee among many other things. As with most things, these two and many other such astonishingly beautiful places collectively make us the best country to live in and raise a family.