Loan Note: Assessing risk in infra and real estate; fundraising makes a comeback

PDI Debt Week delved into how infrastructure and real estate investors are making assessments of risk. Plus: the private debt fundraising market gets back on track and the latest big hires. Here's today's brief for our valued subscribers only.

They said it

“The powerful restart of economic activity has broadened, with Europe and other major economies catching up with the US.”

From the latest Weekly Market Commentary published by the BlackRock Investment Institute.

First look

Questioning the safe option…
In case you missed it, our Friday Letter last week focused on the issue of risk appetite among limited partners and asked whether “safe and steady” private debt investments would suffice as we move into a more inflationary period (see here).

This was also a talking point in the specific context of infrastructure debt at our PDI Debt Week. Should inflation prove to be long-lasting, the point was made that infra debt looks well placed with its predominance of floating-rate notes and inflation-indexed underlying cashflows.

But there was also recognition of the need to diversify beyond the market’s roots of availability-based roads, public-private partnerships and the like.

The increasing flexibility of infrastructure’s definition has been not just a major theme but also a source of some humour. Referring to an Italian pharmacies deal, one panellist drily noted that such a deal was “not quite one for us yet. Maybe in a year or two”.

…as caution creeps into real estate debt 
It may seem counterintuitive in light of the above, but a report from global real estate investment manager AEW concludes that, when it comes to real estate debt, it’s very much a “risk off” environment.

The report finds that, since the start of the covid-19 pandemic in early 2020, there have been no loans recorded with a loan-to-value of more than 80 percent (the riskier end of the spectrum). The average acquisition LTV across Europe in 2020 was decidedly conservative at less than 50 percent.

The safety-first approach was confirmed by the average margin going up 150 basis points for 70-79 percent LTV loans. “Lenders are continuing their risk off attitude, reducing exposure to higher risk loans and requiring higher margins,” said Hans Vrensen, managing director and head of research and strategy at AEW.

Data snapshot

Fundraising bounce back. The value of funds raised in the first nine months of 2021 has exceeded both 2018 and 2020 as it appears fundraising is back on track following the pandemic. In total, $149.6 billion was raised by debt funds according to figures from the upcoming PDI Fundraising Report, indicating 2021 is likely to beat the $176.5 billion raised in the whole of 2020.


DaCruz lands at Runway
Runway Growth Capital, a California-based provider of growth loans to venture and non-venture backed companies seeking an alternative to raising equity, has hired Igor DaCruz as managing director in the company’s life sciences origination team.

DaCruz will operate out of the San Diego office and report to managing director and head of life sciences, Rob Lake. He will facilitate new investments in life sciences and healthcare businesses nationwide. DaCruz has served multiple roles at Silicon Valley Bank for the past 10 years.

Bauer and Naglieri step up at Värde
Värde Partners, a Minneapolis-based global alternative investment firm, has announced the promotion of deputy chief investment officers, Brad Bauer and Giuseppe Naglieri, to join Ilfryn Carstairs as co-chief investment officers. The duo will share oversight of Värde’s global investment activity with Carstairs, who is also co-chief executive officer.

Based in London, Bauer joined Värde in 2007, was named partner in 2013 and promoted to deputy CIO in 2019. Also based in London, Naglieri joined the firm in 2009, became partner in 2016 and was promoted to deputy CIO in 2018.

Restructuring expert joins Dechert in Asia 
Law firm Dechert has appointed Daniel Margulies as a partner in the firm’s global financial restructuring practice based in Hong Kong.

Margulies is experienced in financial restructuring and insolvency matters, distressed asset sales as well as cross-border and special situation financings. Over the past decade, he has been involved in some of the largest and most complex corporate defaults and restructurings, acting for debtors, creditors, private equity and hedge fund clients.

His appointment to lead the firm’s financial restructuring practice in Asia will expand Dechert’s emerging markets restructuring practice.

LP watch

Institution: Arkansas Teacher Retirement System
Headquarters: Little Rock, US
AUM: $21.2 billion
Allocation to alternatives: 21.5%

Arkansas Teacher Retirement System has confirmed $90 million-worth of commitments across two private debt funds, according to materials from the pension’s September 2021 board meeting.

The commitments comprised $40 million to Almanac Realty Securities IX and $50 million to Chatham Asset Private Debt & Strategic Capital Fund III. The pension has previously invested into the Almanac Realty Securities fund series and committed to the fifth and sixth fund.

The $21.2 billion US public pension tends to target North America-focused vehicles pursuing senior or subordinated/mezzanine debt strategies.

Today’s letter was prepared by Andy Thomson with John BakieRobin Blumenthal and Michael Haley.

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