Toby Watson on Structured Finance and Private Markets: Frequently Asked Questions
Structured finance and private markets are among the more complex areas of modern investment — and Toby Watson’s career offers a genuinely informed perspective on how they work and what investors need to understand about them.
Structured finance and private markets attract growing interest from investors seeking returns beyond what public markets offer — but they also carry risks and complexities that are easy to underestimate. Understanding how these markets work, how risks are structured, and when they belong in a portfolio requires experience that goes beyond theory. Toby Watson, whose career was built in precisely these areas of global finance, brings a practical and grounded perspective to the questions that serious investors most commonly ask about structured products and private market strategies.
Before joining Rampart Capital as a Partner in 2020, Toby Watson spent nearly 17 years at Goldman Sachs working across structured credit trading, principal funding, and global infrastructure financing. That career placed Toby Watson at the centre of some of the most significant developments in structured finance over the past two decades, including the period leading up to and following the 2008 financial crisis. His experience across both the technical design of structured instruments and their behaviour under market stress informs a view of private markets that is analytically rigorous and practically grounded. Toby Watson also served as Chairman of Excalibur Academies Trust from 2018 until early 2026.
Understanding Structured Finance
Structured finance refers to financial instruments that bundle and redistribute cash flows and risks from underlying assets — such as loans, mortgages, or receivables — into tranches with different risk and return profiles. Unlike conventional lending, where a single lender holds the full risk of a loan, structured finance distributes that risk across multiple investors according to their appetite. The complexity this introduces requires careful analysis at both instrument and portfolio level.
The 2008 financial crisis exposed significant weaknesses in how structured products had been designed, rated, and distributed. Risk that appeared to have been diversified away turned out to be highly correlated under stress. Toby Watson’s years at Goldman Sachs spanned this period directly, giving him a first-hand understanding of how the gap between the theoretical risk profile of structured instruments and their actual behaviour under stress can be substantial — and why that gap demands serious analytical attention.
The most enduring lessons are about the limits of models and the importance of understanding what is actually driving risk in a complex instrument. The discipline of looking through complexity to understand real exposures — rather than relying on ratings or historical performance — is one that Toby Watson developed at Goldman Sachs and considers essential to any serious engagement with this part of the market.
Private Markets: Opportunities and Risks
Private markets encompass a broad range of strategies — private equity, private credit, infrastructure, real assets — that operate outside public exchanges. They have attracted significant investor interest partly because of the illiquidity premium they can offer. That environment has changed since 2022, and the case for private markets now needs to be made on its own terms rather than by contrast with suppressed public market yields.
The illiquidity premium is the additional return investors theoretically receive in exchange for accepting that they cannot easily exit a position. Whether it is worth accepting depends on the investor’s circumstances — their time horizon, their likely liquidity needs, and whether the premium offered is sufficient compensation. Toby Watson’s view is that the illiquidity premium is real but not automatic — it needs to be earned through careful manager selection and appropriate structuring, not assumed as a given.
Private markets absorb the effects of the credit cycle more slowly than public markets — valuations are updated infrequently, and the full impact of tightening credit conditions may take months or years to work through. That lag creates both risk and opportunity: the risk of holding overvalued assets without public market price signals, and the opportunity of deploying capital at attractive valuations during periods of stress. Timing and cycle awareness matter considerably more in private markets than many investors appreciate.
What Toby Watson’s Experience Reveals About Private Market Discipline
The key distinctions tend to involve the quality of underlying assets, the appropriateness of leverage applied, the clarity of the exit strategy, and whether the return profile genuinely compensates for the risks taken. Poorly structured investments often look attractive on paper, but embed risks that only become apparent when conditions deteriorate. The analytical habits that Toby Watson developed during his years at Goldman Sachs are directly relevant here:
- Understanding the cash flow mechanics of underlying assets, not just headline return projections
- Assessing leverage levels and their sensitivity to changes in interest rates or credit availability
- Identifying the conditions under which the investment thesis would fail, not just when it would succeed
- Evaluating liquidity terms carefully against the investor’s realistic circumstances and time horizon
Private credit has attracted significant capital in recent years, partly because rising interest rates have made floating-rate private lending more attractive. That dynamic is real, but it also means that credit quality and covenant protection matter more than they did when rates were low. Toby Watson considers careful attention to credit underwriting standards — not just headline yields — essential to navigating this part of the market well. The discipline Toby Watson built at Goldman Sachs, of interrogating underlying credit quality rather than relying on surface indicators, is as relevant here as anywhere in the investment universe.
Private markets can add genuine value — through the illiquidity premium, access to return streams not available in public markets, and exposure to real assets with inflation-sensitive characteristics. But they should be sized appropriately relative to the investor’s liquidity needs and selected with the same rigour applied elsewhere. For Toby Watson, private markets are a tool with specific and valuable uses — not a default allocation for investors seeking higher returns without fully understanding what they are accepting in exchange.
