Loan Note: Blackstone’s Zidle cautions against economic complacency; new direct lender launches

Blackstone's Joseph Zidle tells the PDI New York Forum it would be wrong to assume a soft landing for the economy. Plus: Rabobank backs new direct lender; and bitcoin is the collateral of choice for Build Asset Management. Here’s today’s brief for our valued subscribers only.

They said it

“Although there is only a 50/50 chance priced in that there will be another hike this year, if there isn’t, it seems unrealistic to expect inflation to cool to 2 percent on its own”

Ryan Brandham, head of global capital markets North America at Validus Risk Management, on yesterday’s rise in the US Consumer Price Index to 3.7 percent from 3.2 percent in July.

First look

Down to earth with a bump: don’t assume a stress-free future (Source: Getty)

Is a soft landing a wrong assumption?
In a keynote interview that concluded last week’s PDI New York Forum 2023, Joseph Zidle – senior managing director and chief investment strategist in the private wealth solutions group at Blackstone – questioned the assumption of a soft landing for the economy.

He said the dialogue had shifted to a soft landing on the basis that households and businesses were looking increasingly immune to rising interest rates as they came into this period with excess cash. Because nothing too bad has happened yet, the belief is that the economy has successfully negotiated the worst.

Zidle questioned this by pointing out that the average lag between a significant change in the macroeconomic environment and that change taking full effect is between 12 and 18 months. Given that the very beginning of the rising rate environment in the US was March 2022, he says it’s still too early to assume a relatively benign outcome. “With a lag, things always feel good until they don’t,” he noted drily.

He also floated the idea of a return to the 1970s, “a tough time for financial assets, less so for real assets”. Most people assume the 1970s was about high inflation, however a closer look reveals it was the volatility of inflation – big swings up and down – that caused policy makers to take a more aggressive approach to interest rate policy. That triggered shorter cycles, where returns were challenged, and financial assets underperformed real assets.

Zidle added that artificial intelligence would be transformative but that it would be three to five years before it has a “demonstrable impact on productivity”.

Rabobank backs new direct lender
Colesco, a new bank-backed direct lender, has launched into the market. Based in Utrecht in the Netherlands, and supported by Rabobank Group, Colesco says it will “support leading European mid-market businesses in realising their growth ambitions”.

The lender said it would offer senior secured debt, including unitranche loans, and subordinated debt to sponsored and privately owned businesses with EBITDA of between €10 million and €100 million. The firm will be run on the basis of a platform for third-party capital, with Rabobank investing in the platform. No fundraising details have been disclosed.

Colesco is planting its flag firmly in the sustainability camp. Rabobank was founded as a movement of co-operative banks founded by Dutch farmers and food and agriculture remains its core international business. Colesco says it will support companies “well placed for the transition to a more sustainable society” and said its “three key pillars” would be energy transition, sustainable food and an inclusive society.

The firm’s senior leadership team has come from within Rabobank’s credit business and claims to have built “a wide network of leading financial sponsors and high-quality corporate borrowers… both in their home market of Benelux and across Europe”. The team is headed by Danny Vroegop, co-founder and chief investment officer, and Robin van den Brandhof, co-founder and chief operating officer.

Build Asset Management launches credit fund with bitcoin focus
Build Asset Management, a fund manager based in Jefferson City, Missouri, has launched a direct lending fund that invests in “over-collateralised consumer and business loans that are backed by bitcoin”.

Build Asset Management, which says it focuses on income and risk mitigation in public and private credit markets, has launched Build Secured Income Fund I in partnership with Unchained, the bitcoin financial services company. The fund began raising capital in June, but it is not known how much has been raised so far.

Build Asset Management said the fund would offer a “compelling yield profile” to support the income needs of accredited investors and institutions while giving borrowers in the emerging bitcoin economy the chance to access dollar capital.

“Since its invention in 2008, the bitcoin protocol has seen steady growth and adoption across the world, and we see real potential in bitcoin serving as a widely adopted store of value and as quality collateral,” said John Ruth, co-founder and chief executive officer of Build Asset Management.

He added that innovative financing solutions were “critical in today’s complex interest rate and inflation environment”.

Among other advantages when used as collateral, Build Asset Management said bitcoin can be traded 24/7 in a highly liquid market and be liquidated “in a matter of minutes” in the event of a loan default, “unlike real estate or other commonly collateralised assets”.

A call to LPs
Our LP Perspectives 2024 Survey is now live, and we would greatly appreciate your participation as we seek to understand investor sentiment in the private markets today. Here’s the survey link.

Some pointers on this year’s survey:

LP Perspectives is PEI Group’s annual study of institutional investors’ approach to private markets asset classes over the coming year. The survey gathers insight on investors’ asset allocations, propensity to invest, performance predictions and views on the wider market.

The results will be published across all our titles.

Respondents will receive the results of the asset class of their choice as a thank you for completing the survey. PEI Group will also donate $5 to UNICEF for each completed response.

The survey takes no longer than 10 minutes to complete, and all submissions will remain anonymous.

The deadline for submissions is Friday 6 October.


Chait steps in at UK asset-based lender
Independent Growth Finance, a UK asset-based lender, has appointed industry veteran Steven Chait as its new chief executive officer.

The appointment followed John Onslow, who has been CEO for the past seven years, stepping down due to ill health. IGF said Onslow had been receiving cancer treatment but has been progressing well and the firm hoped he would return later in the year “to continue supporting the growth and development of IGF”.

Chait has more than 30 years’ asset-based lending experience with Burdale, Wells Fargo and, most recently, Blazehill Capital.

Launched in 1997, IGF finances working capital and growth for medium-sized businesses in the UK through asset-based loans worth between £1 million (€1.2 million; $1.3 million) and £20 million.

Funds hire for Allen & Overy
Law firm Allen & Overy has hired Elaine Hughes as a partner in its US funds and asset management practice, based in the firm’s New York office.

Hughes has over two decades’ experience representing US and global investment managers, funds and investors on the formation, structuring and operation of US-based and offshore investment vehicles, as well as joint ventures, managed accounts and other alternative investment relationships.

She advises hedge funds, private equity funds, venture funds, credit funds and funds of funds on all aspects of operational needs, securities laws, and regulatory and compliance issues. She is also experienced in leading transactions involving structures and assets with values ranging from tens of millions to several billion dollars.

Her arrival follows the recent addition of Zeeshan Ahmedani, who joined as a partner in the global funds practice.

LP watch

Institution: Ohio Police & Fire Pension Fund
Headquarters: Columbus, US
AUM: $17.2 billion
Allocation to private debt: 3%

Ohio Police & Fire Pension Fund announced a $50 million commitment to Barings North American Private Loan Fund III during its August investment committee meeting.

The fund offers direct lending within the central US mid-market and primarily targets loans for private companies, many of which have private equity backing.

For 2023, OP&F’s private credit plan has set a target allocation of $235 million-$285 million. The Barings investment represents its first commitment of the year towards this goal.

Currently, OP&F’s private credit portfolio is valued at $531 million, accounting for 3 percent of its overall portfolio. The goal is to increase this allocation to reach a target of 3.5 percent.

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