Chorus Capital, the London-based fund manager, has raised $1.4 billion for its fourth vehicle specialising in risk-sharing transactions with banks, beating a target of $1.0 billion. It is significantly larger than the firm’s third fund, which closed on $520 million.
Chorus Capital completed the fundraising in just over a year, with 80 percent of the capital raised during the pandemic and with 70 percent accounted for by new investors. The names of investors were not disclosed, but they included pension funds, insurance companies and family offices in Europe and North America.
Gilles Marchesin, Chorus Capital’s founder and chief executive officer, told Private Debt Investor he considered there to be three main reasons for the fundraising’s success through “very difficult circumstances”. First, the performance of its investments validated the strategy’s claims to resilience through a downturn; second, the firm’s focus on enhancing client servicing, including reporting monthly rather than quarterly during the pandemic; and third, the endorsement of leading pension fund consultants.
Risk sharing involves providing banks with capital relief through a hedge against losses on their core corporate loan portfolios. The loans remain on the banks’ balance sheets but the credit risk is transferred, improving the banks’ profitability and capacity for further lending. It has traditionally been the preserve of European banks but such transactions are increasingly being seen in North America as well.
The complexity of the strategy means a long process of educating investors, which Marchesin feels bore fruit in the latest fundraising. He said the firm was only now receiving commitments from some investors which have been in dialogue for several years.
The fourth fund began putting capital to work once it had reached a first closing at the end of 2019 and is already more than 60 percent invested. Chorus Capital attempts to coincide its fundraising cycles with the quarter-end periods for the banks, when they are focused on boosting their capital ratios and return on equity. Fast deployment is a feature of the strategy, with a typical investment period of around 18 months.
Marchesin said last year saw new banks come into the market as first-time issuers and that deal sizes continue to grow. This is a trend he expects to continue over the next few years. As well as the long-term drivers of activity such as regulatory changes and overcapacity in European banking, the pandemic has also catalysed activity as a result of an increase in banks’ risk-weighted assets as well as an increase in loan loss provision, which has further dented profitability.