Hermes Investment Management has launched a £750 million (€886 million; $994 million) direct lending strategy in partnership with the Royal Bank of Scotland, pending regulatory approval.
The strategy is based on lending to small and medium-sized enterprises with an EBITDA of between £5 million and £75 million. Patrick Marshall, head of private debt & CLOs at Hermes who will be leading the strategy, declined to disclose the size of tickets the fund will complete, but did note that it is aiming to include around 75 names in the portfolio with loans of different sizes.
The strategy has a UK focus, but is aiming to expand the geographical remit as the fund develops. It is sector agnostic, however the firm will follow an ESG policy when targeting its investments and will avoid highly cyclical businesses. Hermes is targeting a return of LIBOR plus 6 percent.
Under the partnership, both Hermes and RBS will originate loans. Senior secured loans will make up the majority of the portfolio, although a number of investments are expected to be unitranche facilities, Marshall said. Terms of loans can be extended up to eight years.
Explaining the benefits of the partnership, Marshall said: “RBS has a significant position in the UK mid-market and has a very well established origination platform. For RBS, being able to work with somebody else and offer their client base bigger tickets and bigger holds is attractive to the bank and from our standpoint, we benefit from a lot of dealflow and first class origination.”
An investor has committed to the platform, but Hermes has declined to reveal its identity.
Marshall said that investing in private debt post-Brexit is attractive to a number of investors in the hunt for yield. “This asset class offers them a strategic position to investors with maximum risk mitigation and exposure to the UK debt market, which remains the most creditor friendly jurisdiction in Europe, despite the vote,” he said.
Marshall joined Hermes from the French asset manager Tikehau Investment Management. His arrival was followed shortly afterwards by Laura Vaughan from GE Capital and Joseph Buckley from Bank of Ireland. Both serve as directors at the firm.