Multi-Strategy Credit: Mix, Match and Maximize

Summary

Credit is a diverse market made up of multiple asset classes, each presenting its own set of risk and return opportunities.
Asset class performance varies over time, offering an opportunity for nimble investors to capture excess returns through a dynamic investment approach.
A multi-strategy investment approach to alternative credit is designed to capitalize on compelling opportunities and manage risk across the credit universe.

The Multi-Strategy Credit Universe

The high yield bond and leveraged loan markets have evolved significantly since their dawn in the 1980s and 1990s. These asset classes have grown into “alternative credit”, an umbrella term that includes direct lending, junior capital, infrastructure debt, collateralized loan obligations (“CLOs”), special situations and distressed. Figure 1 shows the size of each of these markets today. Each asset class has risk / reward drivers that offer portfolio diversification opportunities. OHA believes that a multi-strategy credit allocation to a skilled manager can pursue the most attractive opportunities and “best ideas” at any point in time.

Fig. 1: Multi-strategy Credit AUM^1,2

As of December 31, 2024

Investment approaches for “liquid” and “private” credit are increasingly converging, reflecting a focus on relative value and the interplay between these markets. In this paper, we discuss the benefits of multi-strategy credit investing. OHA believes managers with the necessary capabilities can harness this flexibility to deploy dynamically into a fuller spectrum of investable opportunities. In turn, investors are positioned to capture the most attractive risk-adjusted returns, including illiquidity and complexity premiums, as they evolve over time.

What is the Benefit of a Flexible Credit Approach?

Alternative credit developed as an asset class that could enhance risk-adjusted returns relative to traditional fixed income and equity allocations, particularly in more challenging macroeconomic environments. These investments may enhance downside protection and diversify return streams into higher current income with potential capital appreciation. Multi-strategy credit is designed as an “all-weather” strategy with the ability to invest across the credit universe and capital structure in both private and public markets. This flexibility allows for tactical, opportunistic positioning throughout market cycles that emphasizes relative value and dynamic portfolio construction.

As a single point of entry into a diversified alternative credit portfolio, a flexible mandate can provide access to private credit, liquid credit, asset based credit, structured credit, stressed / distressed and special situations. This approach is designed to capture potential incremental returns, reduce correlation risk and help dampen potential volatility or larger drawdowns relative to static or more narrowly focused mandates.

Figure 2 highlights how asset class performance can shift dramatically from year to year, underscoring the potential value of asset class diversification in a credit portfolio. A static allocation to one or a combination of these assets risks missing opportunities and amplifying losses, while a flexible approach adapts to changing market conditions and can capture evolving value across the credit spectrum.

Fig. 2: Illustrative Asset Class Return Analysis³

Investing opportunistically across credit asset classes can enhance returns while managing risk relative to traditional asset classes through market cycles. A flexible credit mandate can provide investors with access to a diversified and dynamic portfolio of credit investments offering attractive risk-adjusted returns over time.

Considerations of Flexible Capital

A flexible approach can be a strong option for investors seeking diversified credit exposure with attractive risk-adjusted returns. It is important to fully understand the benefits and risks of a multi-strategy investment approach before evaluating the overall risk / return profile of the strategy.

Diversification: Investing across multiple credit asset classes reduces exposure to any single sector or strategy, helping to lower portfolio volatility and correlation risk.

Flexibility: A multi-strategy mandate enables tactical investing across the credit spectrum, allowing managers to pursue the most attractive opportunities and “best ideas” at any point in time.

Market and Interest Rate Fluctuations: A well-allocated multi-strategy portfolio can help mitigate volatility and capitalize on favorable movements in the interest rate and market environments.

Idiosyncratic Drivers: Risks unique to a company or security can be a source of alpha generation. A manager can capitalize on this potential alpha through differentiated insights and credit selection.⁴

Liquidity: Incorporating liquid asset classes within a multi-strategy portfolio can enhance the ability to rotate a portfolio, enabling the portfolio to adapt to changing market dynamics. Liquid investments also help management of investor liquidity needs.

Manager Selection: Choosing the right investment manager is a critical decision particularly in private assets with long-term investment horizons. A skilled manager with deep market experience and disciplined underwriting can enhance alpha generation across diverse market environments.

Takeaways

OHA believes flexibility within a portfolio is essential to deliver consistent income, manage risk and position portfolios for long-term success.
By combining deep credit research with dynamic deployment, OHA seeks to create portfolios that can adapt to market shifts while maintaining underwriting discipline and a focus on achieving long-term investment goals.

Adam Nankervis

Portfolio Manager & Partner

Sep 2025 From the Field

We Are Going to Need a Bigger Borrower

Past performance is no guarantee or a reliable indicator of future results.

Appendix and Endnotes

¹ Source: Preqin, Goldman Sachs Global Investment Research, BofA Global Research, Intex, LCD and OHA analysis as of December 31, 2024. Direct lending includes BDC AUM. Liquid credit includes high yield and leveraged loan AUM as represented by the ICE BofA US High Yield Index and Morningstar LSTA Leveraged Loan Index. Totals may not add due to rounding.

²“CLOs” defined as Collateralized Loan Obligations.

³Source: OHA analysis as of December 31, 2024. Direct lending represented by the Cliffwater Direct Lending Index. Junior Capital represented by Preqin one-year rolling vintage horizon IRRs of mezzanine private credit funds. Asset Based Lending represented by PitchBook one-year rolling vintage horizon IRRs of infrastructure debt funds. CLOs represented by a 50%/50% blend of the JPM US CLOIE BB Index and OHA analysis of Intex data on CLO Equity returns. Special Situations represented by Preqin one-year rolling vintage horizon IRRs of distressed private credit funds. Liquid credit represented by a 50%/50% blend of the ICE BofA US High Yield Index and S&P UBS Leveraged Loan Index. The Cliffwater Direct Lending Index (CDLI) is an asset-weighted index that measures the unlevered, gross-of-fees performance of U.S. middle-market corporate loans.The J.P. Morgan Collateralized Loan Obligation BB Index aims to track the performance of BB-rated debt tranches of broadly syndicated, arbitrage US dollar-denominated debt as part of the flagship J.P. Morgan CLOIE Index ($-CLOIE). The ICE BofA US High Yield Index tracks the performance of US dollar-denominated, below-investment-grade corporate debt that is publicly issued in the US domestic market. The S&P UBS Leveraged Loan Index measures the performance of U.S. dollar-denominated leveraged loans, which are loans made to borrowers with high debt or low credit ratings. An investor cannot invest directly in an index.

⁴Alpha is a measure of an investment’s performance that indicates its ability to generate returns in excess of its benchmark.

Key Risks and Disclosures

This document is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities or partnership interests. Any investor who subscribes, or proposes to subscribe, for an investment in a fund or separately managed account must be able to bear the risks involved and must meet relevant suitability requirements. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk.

As interest rates rise, bond prices generally fall. Investments in high-yield bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments.

Some or all alternative investments may not be suitable for certain investors. No assurance can be given that a fund or separately managed account’s investment objectives will be achieved. Alternative investments are speculative and involve a substantial degree of risk. Opportunities for withdrawal/redemption and transferability of interests are generally restricted, so investors may not have access to capital when it is needed.

The use of leverage will magnify the potential for loss on amounts invested. The use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. The use of leverage and other speculative practices may increase the risk of investment loss or make investment performance volatile. In addition, the fees and expenses charged may be higher than the fees and expenses of other investment alternatives, which will reduce profits.

There can be no assurance that an advisor will be able to implement its strategy or avoid incurring any losses. Diversification cannot assure a profit or protect against loss in a declining market. Opinions and estimates offered herein constitute the judgment of OHA as of the date this document is provided to you (unless otherwise noted) and are subject to change, as are statements about market trends.

All opinions and estimates are based on assumptions, all of which are difficult to predict and many of which are beyond the control of OHA in addition, any calculations used to generate the estimates were not prepared with a view towards public disclosure or compliance with any published guidelines. In preparing this document, OHA has relied upon and assumed, without independent verification, the accuracy and completeness of all information.

OHA believes that the information provided herein is reliable; however, it does not warrant its accuracy or completeness. This document may contain, or may be deemed to contain, forward-looking statements, which are statements other than statements of historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

The future of investment results of the investments described herein may vary from the results expressed in, or implied by, any forward-looking statements included in this document, possibly to a material degree. The recipient may contact OHA at (212) 326-1500 to obtain additional information or ask questions about any information, including the methodology used for any calculations and details concerning any of the summary charts or information provided herein.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. The views contained herein are those of the authors as of September 2025 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates. This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision. Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only. T. Rowe Price Investment Services, Inc. OHA is a T. Rowe Price company.

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