Investment bank Credit Suisse and the Universities Superannuation Scheme (USS) pension fund have formed an agreement to provide senior debt finance to private equity and asset management firms to fund their investments in senior loans to medium-sized companies in Europe.
The partnership has been seeded with a $3.1 billion portfolio of outstanding loans to specialist direct lending funds originated by Credit Suisse from the middle of 2014 to the end of 2015. This portfolio is secured by an underlying portfolio of loans to medium-sized European companies.
USS entities have purchased a majority interest in the loans in the seed portfolio, with Credit Suisse’s Global Markets division retaining a minority economic interest. USS has also obtained from Credit Suisse ongoing risk management and origination services in connection with the arrangement.
Credit Suisse moved the loan portfolio from Global Markets to its Strategic Resolution Unit (SRU) at the end of H1 2016 as part of a strategy to reduce capital usage in its investment bank. The new arrangement provides an exit for the SRU, while enabling the bank to maintain a strategic presence in the private credit market alongside USS’s long-term investment in the asset class.
A press release from USS claimed that the collaboration marked the first time a UK pension fund has partnered with an investment bank to provide senior portfolio financing on this kind of scale to the mid-market.
Credit Suisse said it expects to start originating new loans to direct lending funds in the first half of this year.
Credit Suisse’s fund finance team will provide services to USS including loan servicing, credit monitoring, structuring and the origination of new financing facilities.
There is a possibility that other institutional investors may join the collaboration, giving asset managers access to a diversified pool of long-term institutional capital.
“This transaction gives USS exposure to top-tier private credit managers through a high-quality portfolio of loans delivering an attractive risk-adjusted cash flow for the benefit of our members,” said Ben Levenstein, head of private credit and special situations at USS Investment Management.
Added Jonathan Moore, co-head of global credit products in EMEA at Credit Suisse: “It allows us to retain exposure to a business which interfaces with our most important private equity and credit asset manager clients while generating attractive returns on the capital deployed.”
Based in Zurich, Credit Suisse is a financial services giant focused on private banking, investment banking and asset management employing more than 47,000 staff in over 50 offices globally. USS is the principal defined benefit pension scheme for universities and higher education institutions in the UK and had total fund assets of approximately £56 billion at the end of September last year.