Hermes partners with local banks for European lending fund

Hermes is expanding its bank origination network to target lending opportunities in continental Europe.

Hermes Investment Management has launched a European direct lending fund as a follow up to its 2016 UK-focused vehicle.

The Hermes European Direct Lending Fund will be managed by Patrick Marshall, head of private debt and CLOs at the asset manager. The fundraising target has not been disclosed.

The fund will aim to offer access to senior-secured loans to mid-market businesses in the UK and Europe, focusing on Scandinavia, Germany, Benelux and Ireland.

Hermes will originate deals via its co-lending partnerships with Danske Bank, DZ Bank and KBC Bank, as well as through its existing origination agreement with Royal Bank of Scotland in the UK.

Partnerships with banks will give Hermes access to strong deal flow, the firm said, and provide attractive opportunities across a wide range of sectors. The team will also look to leverage contacts across private equity, banks and borrowing businesses to tap into additional dealflow.

Marshall said: “The strength of our partnerships with Europe’s leading banks, combined with our own origination skills, sustain a strong pipeline of high-quality loans for our investors.

“By focusing the Fund on attractive, senior-secured loans in the mid-market space, we can ensure there are strong creditor protections in place. Our aim will be to consistently outperform for our investors by lending to quality, growing businesses on terms seeking capital preservation and yield capture.”

The fund will target companies with an EBITDA of between €5 million to €75 million, with a “sweet spot” of under €35 million

The fund will target returns equivalent to Euribor plus 5-6 percent gross, with a seven-year lifespan after final close.

Hermes previous direct lending fund launched in 2016 with a £750 million target. The fund was launched in partnership with Royal Bank of Scotland and targets SMEs in the UK, aiming to lend to approximately 75 portfolio companies.