Far from the madding crowd

Going public offers private debt funds the chance to stand out in a crowded European market.

A lengthy track record and healthy performance figures should be enough to distinguish yourself in the private debt market. But in the European context, a low-yield environment and bank retrenchment has created fertile ground in which many credit strategies can flourish, both old and new.

In a borrowers’ market, therefore, it is even more important that funds be able to carve out a name for themselves. One tool to achieve this is to go public. This week, Tikehau Capital listed on the Euronext exchange at €21 a share, with a market capitalisation of €1.5 billion. It is the latest chapter in the 12-year history of Tikehau, a relative veteran in the European private debt space, and is part of the firm’s bid to scale up.

Co-founder Mathieu Chabran says the move is not just about “being recognised as an important player, but increasing the awareness of the firm’s brand. Performance remains a critical aspect to this. Transparency is key and in the interests of shareholders and investors in the fund”.

By opening its business to alternative streams of capital, it allows the firm’s management team the flexibility to invest pari passu. It offers greater assurance to participants in the private debt platform that the firm has the ability to put additional skin in the game, ultimately aligning its interests with investors to make sure the fund performs to expectations.

A public listing enables a credit fund to tap into what one partner at a London law firm describes as “acceleration capital” – a way of rapidly scaling the business. “Say someone is running half a billion and they need a much bigger amount to get to a new level, they might just get a strategic investor in to take a piece of the business that helps them capitalise the expansion,” he says. “Doing that in a public market context is another way of raising that capital.”

The pressure on European firms to scale their private debt strategies is increasing. After a slow fundraising year, Alcentra and Hayfin have returned with impressive final closings on their direct lending funds – raising €4.3 billion and €3.6 billion respectively. In the case of Alcentra, that is triple the size of the predecessor vehicle.

With consolidation across Europe expected, it adds to the need for funds to beef up their brand names. While Tikehau has no immediate consolidation plans, Chabran recognises that within the current environment it is important to have a “flexible structure to take advantage of such opportunities”.

Going public is not necessarily the silver bullet for firms. The increased transparency offers both costs and benefits and share price is not necessarily the most accurate measurement of performance. But the additional capital stream allows the firm to put its money where its mouth is – and that can be vital if you’re trying to stand out from the crowd.