A difficult pitch, but Europe needs US investors

Europe’s GPs are hungry for capital, and US LPs have plenty to commit. But bringing them together means overcoming concerns about the way disparate regimes operate.

There could be a big opportunity for European credit managers to find limited partners on the other side of the Atlantic. At least that’s what a poll of conference-goers at last week’s PDI New York Forum would suggest.

Some 25 percent of investors polled said they planned to increase their allocation to European private debt by more than 5 percent, while 31 percent said they don’t currently invest in such vehicles. That translated to a majority of investors present being fertile ground for general partners seeking capital for a European debt fund.

Though admittedly an imperfect barometer, a wide swathe of US LPs were represented – public and corporate pension plans and insurance companies among them.

European funds were targeting $65.48 billion in fresh commitments as of 1 July, according to PDI data, a not insubstantial amount. It’s not unreasonable to assume that a significant chunk of this might be accounted for by those new to the region. Before this happens though, European credit managers will need to make sure US investors feel comfortable supporting them – and the regimes within which they operate.

While the European Union provides some pan-regional frameworks, the member states are still sovereign countries that ultimately amount to a patchwork of laws and disparate economies – to state the obvious, Greece and Spain have a much different risk profile to France or Germany.

Even though each US state has a different economy – no one would confuse California with Iowa – circumstances are obviously much different. The EU is not the United States of Europe, with a single set of unifying laws.

One area where this is clearly prominent is in bankruptcy or insolvency proceedings. In the US, any business that fails and seeks court protection is guaranteed a shot at re-organisation – if not a second life – under Chapter 11 bankruptcy statutes. But in France, for example, safeguard proceedings – a Chapter 11-esque procedure – function differently and creditors have different rights than under (also for example) Portugal’s Insolvency and Corporate Recovery Code.

All this may require a lot of hand-holding on the part of managers, but it could pay dividends in the future. Some of the larger European managers are already blazing a trail in terms of winning commitments from US LPs for their vehicles.

The Maine Public Employees’ Retirement System committed €100 million to the €6.5 billion Ares Capital Europe IV fund, while at least five US pension funds have pledged money to Intermediate Capital Group’s ICG Europe Fund VII, a mezzanine fund targeting €4 billion.

Some of the most sophisticated US LPs have made productive transatlantic moves. Now it’s time to cultivate relationships with those that haven’t yet hopped across the pond but – if our poll is any guide – may very well be tempted.

Write to the author at Andrew.h@peimedia.com.