Loan Note: Big increase forecast for NAV lending; AlbaCore’s Allen predicts credit ‘renaissance’

Citco foresees a massive increase in the size of the NAV lending market; AlbaCore's David Allen explains why hopes are high for credit; plus, why an M&A revival is expected this year. Here's today's brief for our valued subscribers only. 

They said it

“We must continue to take whatever measures are necessary to bring inflation back to 2 percent. And we will do so”

Christine Lagarde, president of the European Central Bank, quoted in an article published by Reuters

First look

On the up: NAV lending tipped to grow sixfold by 2030 (Source: Getty)

NAV lending is a $600bn opportunity
The size of the net asset value lending market is forecast to multiply more than six times from its current size over the next seven years, according to a report from fund administrator Citco.

Citco said NAV credit facilities had experienced annual growth of approximately 30 percent across its client base between 2019 and 2022, while secondary trading grew at around 7 percent over the same period.

According to the Fund Finance Association, the current size of NAV facilities globally is estimated to be less than $100 billion, representing under 1 percent of the estimated value of private capital investments. Based on current growth rates, Citco estimates the market could grow to more than $600 billion by 2030.

“For alternative asset managers, a prudently structured NAV facility provides liquidity, helping a manager to fulfil its fiduciary duty to its investor clients,” said Michael Peterson, managing director of Citco Capital Solutions.

Credit in ‘renaissance’ period says AlbaCore’s Allen
Conditions for lenders are the most favourable since at least the global financial crisis, or perhaps longer, according to a credit market update from David Allen, managing partner and chief investment officer at London-based fund manager AlbaCore Capital Group.

He says lenders will be able to generate equity-like returns based on higher coupons and yields, lender-friendly terms and a less dire economic outlook than originally feared. Senior secured risk is being priced at 10 percent yields, he adds – meaning equity-like returns can be achieved without moving into subordinated or distressed opportunities.

He says optimism around the economy has been generated by higher energy storage levels in Europe, China’s reversal of covid policies and resilient consumer spending despite higher prices. These factors have combined to blunt recessionary fears.

Allen said he believed rates and yields would remain high over the next several years and that elevated interest expenses would “likely lead to higher levels of default in the coming years”.

Lincoln tips European M&A revival
“Resurgent” deal activity is to be expected in Europe’s M&A markets this year, according to a new report from investment bank Lincoln International.

The report points out that market volatility and political uncertainty led to a marked decline in deals in the second half of last year, with European businesses “acutely affected by unrest in Ukraine and the resulting spike in energy prices”. But as some of the headwinds ease, M&A activity “will likely return with renewed momentum”.

With markets having seen a wave of repricing, Lincoln says more opportunities are starting to emerge. There is a view that central banks in Europe are unlikely to pursue interest rate increases comparable with the Federal Reserve in the US. As finance ministers coordinate their fiscal policies with the ECB to avoid worsening inflationary and recessionary pressures, the cost of capital is not expected to be prohibitive for dealmakers.

Lincoln says it has seen increasing pitch activity in Europe in Q1, which it thinks is likely to continue rising through Q2 and into H2.


Stafford hires senior exec to committee 
London-based private markets manager Stafford Capital Partners has appointed Stephen Milburn-Pyle, former head of the Australia Post Superannuation Scheme, to its credit investment committee.

Milburn-Pyle joined Australia Post in 2005 to manage the investment strategy of the APSS and was made the company’s general manager of superannuation in 2011. He held responsibility for the strategic and operational management of APSS, a circa $8 billion defined benefit corporate superannuation fund, until its transfer into Australian Retirement Trust in 2022.

Since being appointed to APSS, he has worked with Stafford in the timberland, infrastructure, private equity and private credit sectors. In 2017 Stafford launched a dedicated private credit strategy for the APSS, the Stafford Credit Opportunity Trust.

In 2022, Stafford launched the Stafford Private Credit Income Opportunities Fund, which was seeded with a $132 million NAV secondary transaction.

Credit remains key focus for AXA IM Alts
AXA IM Alts, the Paris-based alternatives manager with €186 billion of assets under management, says it raised around €15 billion of net new money in 2022, including €7.7 billion of net new money for private debt and alternative credit strategies.

The firm’s credit total included around €3.5 billion for real estate debt; €2.8 billion for asset-backed securities and collateralised loan obligations, with €600 million into US and European-managed CLOs as well as €2.2 billion for senior ABS and CLOs. The firm’s Dutch mortgage offering received €1.1 billion, while the Significant Risk Transfer business raised more than €700 million.

The firm said its infrastructure and private debt and alternative credit strategies remain a key focus in 2023 “as the business continues to respond to and match shifting investor requirements” due to the changing macroeconomic environment, characterised by higher interest rates, rising inflation and regulatory pressures on the central banks.

First close for South African mezzanine fund
Johannesburg-based fund manager Kholo Capital has raised R870 million (€45 million; $48 million) at the first close of its Kholo Capital Mezzanine Debt Fund I, which aims to make long-term mezzanine debt investments in support of mid-market companies with operations in Southern Africa (South Africa, Botswana, Namibia, Lesotho and Swaziland).

Commitments have been secured from institutional investors including the 27four Black Business Growth Fund, RisCura (on behalf of various clients), the Mineworkers Provident Fund, the National Fund for Municipal Workers and Thuso Partners, and means the firm has moved past the halfway mark as it aims to reach a target final close of R1.5 billion.

Kholo will focus on companies generating a minimum EBITDA of R25 million and will provide capital within a preferred range of R50-200 million per investment. The firm said it would partner with businesses over a four to seven-year period “realising not only commercial returns, but with a focus on achieving more holistic impact”.

LP watch

Institution: Florida Retirement System Trust Fund
Headquarters: Tallahassee, US
AUM: $232.5 billion

Florida Retirement System Trust Fund (Florida SBA) has committed $150 million to Torchlight Debt Fund VIII, according to a source from the public pension.

Torchlight Investors, a New York-based private real estate firm, specialises in the management of real estate debt funds. With a senior debt strategy, the firm launched its latest debt fund in May 2022, with its first close in December 2022 on $858.25 million.

Florida SBA’s recent private debt commitments have targeted senior debt and distressed vehicles in the real estate and corporate sectors in North America and Asia-Pacific.

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