The strategic partnership announced late last month by Paris-based Tikehau Capital and Churchill Asset Management, of New York, could be the start of a trend in the international arena for direct lending.
Under the agreement, the terms of which have not been disclosed, each manager is investing in the other’s funds. They will also cooperate on private credit investment opportunities in each other’s respective markets. Although neither would speculate whether the partnership might lead to even closer ties, Ken Kencel, president and chief executive of Churchill, said: “We see the relationship as one we’d like to grow in other areas as we go forward.”
For Churchill, an affiliate of Nuveen, the move represents the private lender’s “first foray” into Europe, according to Kencel. For Tikehau, the deal accomplishes its objective of teaming up with what Tim Grell, chief executive of Tikehau Capital North America, calls “one of the premier allocators and LPs in the world”.
Having rapidly grown its US LP base across several strategies, Tikehau’s direct lending strategy remains “exclusively in Europe”, Grell said. Churchill has a longstanding relationship with the US arm of Tikehau, which Kencel says is philosophically very similar to Churchill.
“We are hoping to work with Tikehau to source debt financing opportunities from European private equity firms as they look to invest in US businesses,” said Kencel. “We also see an opportunity to work with them cooperatively on global credit investor mandates.”
Churchill, with $27 billion of committed capital, raised more than $6.4 billion – a record for the firm – in new committed capital in 2020, more than double the previous year. The manager expects to close an additional $2.2 billion of fundraising in the first quarter of this year. Tikehau Capital, an asset management and investment group, had €27.2 billion of AUM as of 30 September 2020.
Through the agreement, Tikehau gains access to TIAA, which Grell said is considered “a platinum LP”. Nuveen is the asset manager of TIAA. “We’re very pleased to have Tikehau become part of the broader TIAA family,” Grell said.
The transition from banks to direct lenders in Europe is still several years behind the US, as banks continue to remain quite active, Kencel said. European managers raised $23.7 billion in 2020, far less than the $72.4 billion raised in the US, according to Private Debt Investor research. Indeed, the PDI data show that in 2017, a peak year for fundraising in the past five years, European managers raised less than 40 percent of the $103 billion that was raised in the US.
Nevertheless, Kencel expects non-bank lenders to continue to grow and take share in the European market. Moreover, “Tikehau is one of the most active lenders in the European middle market”, Kencel said.
Grell notes Tikehau has built the local knowledge, and familiarity with the culture and language necessary to compete in each country in Europe. Investors said it is critical to have access to products across Europe and the US, according to Grell. “It’s rare to find the best in the US and the best in Europe all in one package,” he said. “Together we form a pretty formidable relationship.”