Loan Note: BC Partners is into intervals, Oaktree’s sourcing group, Ares $3.5bn raise

BC Partners and Mount Logan have brought the interval fund back into the spotlight. Plus: Oaktree launches a new sourcing and origination group and Ares is the latest with a Zeitgeist fund.

They said it

“Watching the debate over the CARES Act in the US, and whether public funds should be deployed to private equity firms and their portfolio companies, private debt managers should be vocal about their value”

Ainun Ayub, alternative fund servicing product head for Europe and Asia at London-based financial services firm Brown Brothers Harriman, in an article for Talking Points, a report accompanying our July/August issue

First Look

Love ’em or hate ’em: interval funds

Ted Goldthorpe
Goldthorpe: identified new fee stream

Interval funds are something of a peculiarity in the private debt world. Sometimes referred to as the ‘cashback option’, they offer liquidity atypical of long-term debt funds (the managers agree to periodically buy back investors’ shares). They also offer access to a largely retail investor base and prized long-term management fees.

Canadian asset manager Mount Logan Capital and Sierra Crest Investment Management – an affiliate of the credit arm of private equity firm BC Partners, headed by Ted Goldthorpe – appear to be fans. They’re buying the Resource America Credit Income Fund, a US interval fund with $240 million of AUM (see our story here). Goldthorpe hailed the “meaningful, low-volatility, recurring asset management fee streams” to be derived from overseeing a “large, semi-permanent portfolio of third-party capital”.

Not everyone is as keen. Periodically tipped as the next big things in credit, they have remained small in number. A clue as to why this is may lie in a quote from a Morningstar analyst from back in 2017, who warned: “Given the potential illiquidity of their underlying holdings, high fees and the complexity associated with the redemption process, interval funds should probably be thought of as niche investments, if they’re thought of at all.” Ouch.

Oaktree steps up sourcing

Having returned to the fundraising trail, US fund manager Oaktree Capital Management has now created a new North American sourcing and origination group that will be led by managing director Milwood Hobbs Jr, who joined the firm in 2013 from Natixis Securities. Since 2005 Oaktree has invested more than $16 billion in 350 directly originated loans. Hobbs will lead the formation and development of the S&O group to drive those activities across the firm.

Data snapshot

China heads from 2.0 to zero. Following various issues including pyramid scheme scandals, Chinese regulators have come down hard on the country’s online lenders (see this November 2019 article by Reuters). The chart below illustrates the industry’s sharp rise and fall.

Essentials

What PE’s been up to in lockdown

It may have stopped them from visiting their favourite restaurants, but being homebound has not prevented investors from making commitments to their favourite funds. In a podcast released this week, our colleagues on Private Equity International discuss the results of two surveys that dig into LP and GP behaviour since the beginning of the covid crisis in mid-March.

Ares boards fundraising train 

You’re simply not à la mode unless you have a new fund for the new era. Following on the heels of a slew of distressed and dislocation vehicles, Ares’ $3.5 billion Special Opportunities Fund is the latest to target opportunities arising from the economy’s changed circumstances across public and private markets.

LP Watch

Institution: San Francisco Employees’ Retirement System
Headquarters: San Francisco, US
AUM: $25.7bn
Allocation to alternatives: 26.5%

San Francisco Employees Retirement System has announced a commitment of $55 million to MGG SF Evergreen Unlevered Fund 2020. The $25.7 billion US public pension has a 10 percent target allocation to private debt that currently stands at 4.7 percent. SFERS tends to favour commitments to senior debt funds in North America.

Institution: Oklahoma Police Pension and Retirement System
Headquarters: Oklahoma City, US
AUM: $2.51bn
Allocation to alternatives: 24.56%

Oklahoma Police Pension and Retirement System has agreed to commit $30 million each to Oaktree Opportunities Fund XI and CVI Credit Value Fund V, a contact at the pension informed Private Debt Investor.

The $2.51 billion US public pension has a 2.45 percent allocation to private debt. Its recent commitments have been to funds focused on the corporate sector globally.

Find information on more than 4,000 institutions in PDI’s database.


Today’s letter was prepared by Andy Thomson with John Bakie, Robin Blumenthal and Adalla Kim


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