Loan Note: Adams Street’s Sacher on AEL partnership; European direct lending on the rise

Bill Sacher comments on Adams Street's loans partnership with American Equity. Plus: why European direct lending could overtake the US and digging into the opportunity in China through a podcast with BlackRock's Celia Yan. Here's today's brief for our valued subscribers only.

They said it

“The market has definitely moved to a position where there is a little bit more of a trust factor involved.”

An unnamed sub line banker quoted by our colleagues on Private Funds CFO as part of its coverage of an alleged sub line fraud committed by a US private equity manager. See the coverage here.

First look

Adams Street’s insurance tie-up
It’s a question that is widely asked: are private debt and insurance a natural match? “Private debt provides an investment asset for insurance companies that are challenged to find appropriate yield and return,” says Bill Sacher, New York-based partner and head of private credit at private markets manager Adams Street Partners.

Private Debt Investor recently caught up with Sacher, following last month’s announcement that Adams Street was launching a partnership with leading insurer American Equity Investment Life Holding Company.

The partnership, expected to be up and running in the first half of this year, will see AEL commit $2 billion to a strategy that will invest on an open-ended basis in US mid-market sponsor-backed companies.

The deal gives Adams Street, known widely as a substantial investor in private equity funds, greater capacity to originate loans. Asked about the benefits for AEL, Sacher says: “Over time we expect to bring in third-party investors and create an asset manager fee income stream for AEL. It would be a new line of revenue and enhance its enterprise value.”

Europe closes on US in direct lending 
European direct lending has always been blighted by something of an inferiority complex: growing and full of promise, but still much smaller and less developed than its equivalent market on the other side of the Atlantic. But this could all change, suggests a new study from Oxford University’s Said Business School, commissioned by London-based fund manager Pemberton. See our summary here.

There are some caveats, but under certain assumptions, the report envisages European direct lending growing larger than US direct lending over the next decade. It cites Europe’s “stricter regulatory environment, shrinking banking sector, lower yield environment relative to the US, as well as a large pool of private companies that may transition to PE in the next decade” as reasons for the region’s expected private lending boom.

China: more than just distress 
Traditionally associated with distressed debt, the private debt opportunity in China is actually much broader due to government policies that have paved the way for private investment in a range of sectors. We caught up with Celia Yan, head of China and part of the Asia private debt team at BlackRock, in this podcast to hear more about what China has to offer and whether global investors have a role to play.

Data snapshot

Direct lending gains ground. Direct lending has become the most popular private debt strategy and figures from LCD show how it has claimed European market share. First, in 2018, direct lending was able to eat into the market share of high-yield bonds, which saw their share dip from 39 percent in 2017 to 32 percent. Then, in 2019, direct lending made inroads on leveraged loans, reducing their market share from 49 percent in 2018 to just 42 percent.

Essentials

Arrow launches capital formation unit
Arrow Global Group, a European investor and alternative asset manager in non-performing and non-core loan portfolios and real estate assets, has launched a clients and capital formation group within its Arrow Capital Management business.

The group will partner with Arrow’s clients to provide investment solutions and insights from Arrow’s core areas of expertise in European non-performing and non-core debt. It will devise Arrow’s capital formation strategy and aim to broaden the firm’s investor set by enabling global capital pools to access the opportunities presented by the European NPL market through Arrow Capital Management.

The group has appointed Kamran Anwar as global head. Anwar spent 23 years at Citigroup in leadership roles across the Middle East, Europe and Asia covering M&A, transaction banking, private equity, real estate and corporate strategy. Most recently, he worked with SS&C Technologies leading their Private Equity Services franchise in EMEA.

Blasco in the saddle at WhiteHorse 
Fund manager HIG Capital, a global alternative investment firm, has expanded its European WhiteHorse Direct Lending team with the addition of Ignacio Blasco as a managing director. Blasco will be based in HIG’s Madrid office.

He has more than 28 years’ experience in leveraged finance and direct lending, covering a wide range of sectors and investment strategies. Prior to joining HIG, he was a managing director at Houlihan Lokey in Madrid. Prior to that, he was a managing partner of Montalban Debt Funds, after a long career at Société Générale in Madrid and London.

LP watch

Institution: Strathclyde Pension Fund
Headquarters: Glasgow, UK
AUM: £25.5 billion
Allocation to alternatives: n/a

Strathclyde Pension Fund has confirmed £50 million-worth ($69 million; €58 million) of commitments across two senior debt funds, according to the pension’s March 2021 investment committee meeting minutes.

The Glasgow-based pension has committed £30 million to Tosca Debt Capital Fund III and £20 million to RiverRock Sustainable Industry Finance Fund. Both will make investments into companies based in Western Europe.

Strathclyde Pension Fund has made five commitments to private equity vehicles with a 2018 or 2021 vintage year, which combined constitute £121.6 million.

Institution: South Carolina Retirement System
Headquarters: Columbia, US
AUM: $35.61 billion
Allocation to alternatives: 8.5%

South Carolina Retirement System has confirmed a $25 million commitment to GoldenTree Structured Products Fund VII, according to minutes from the pension’s recent committee meeting.

The senior debt fund is managed by GoldenTree Asset Management and is targeting $900 million to invest in North American companies. This is the second known commitment that SCRS has made to a GoldenTree-managed fund; it committed $75 million to GoldenTree Loan Management II in October 2019.

The $35.61 billion US public pension has an 8.5 percent current and target allocation to private debt.

SCRS’s private debt fund commitments tend to focus on North American vehicles with senior debt strategies.


Today’s letter was prepared by Andy Thomson with John Bakie and Robin Blumenthal.

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