Loan Note: Carlyle’s Lukaitis on ESG, BlueBay ramps up, the Oaktree portfolio breakdown

Why ESG is more important than ever amid the covid-19 crisis. Plus: Ups and downs in the CLO market and evidence that distress is on the rise.

They said it

“There are many firms which need capital to expand, but they don’t want to go down the equity route in the current market where equity values are depressed”

Scott Eisenberg, head of credit investing at Francisco Partners, explains the rationale for the firm’s debut technology credit fund. See here for our exclusive on its final close.

First Look

Why ESG is more important than ever

Weighing up ESG
Weighing up ESG: sustainable models are doing better in the crisis

The need to integrate environmental, social and governance considerations into investment decisions has not gone away and may even become more important as the covid-19 crisis unfolds.

Speaking on an S&P Global Intelligence webinar, Sam Lukaitis, director of global capital markets at Carlyle Group, said the pandemic was accelerating the case for ESG since businesses with more sustainable models were faring better in the crisis.

The carbon footprint of air travel has long been a major environmental issue and those firms that have learned to adopt technology-based solutions may find they are better equipped to deal with the challenges ahead.

This follows a huge growth in concern about ESG in 2019, according to Sabrina Fox of the European Leveraged Finance Association. Fox said that at the beginning of last year asset managers would get one to two requests for ESG data on deals from their investors, but that this had risen to a dozen or more by the end of the year.

BlueBay ramps up in CLOs…

Continuing a transformation begun several years ago, BlueBay Asset Management said it was taking over the US CLO management business of its parent, Royal Bank of Canada. The move gives BlueBay RBC’s $500 million CLO portfolio – the first managed CLOs on BlueBay’s platform – and its team of four professionals. Sid Chhabra, hired in 2018 to build BlueBay’s structured finance and CLO capabilities, said the move “provides an exciting opportunity” to step up its CLO franchise and accelerate its plans to manage US-focused CLOs. BlueBay, which a year ago spun out its private debt business, has an existing leveraged finance team of 26 people managing more than $10 billion.

…but Japan urges caution

In early June, Japan’s financial regulators reportedly warned its banks about the risks of investing in CLOs. The country’s banks hold nearly 20 percent of the global market for CLOs, though virtually all of these are in AAA tranches. In May, Norinchukin Bank, with $71 billion of CLOs at the end of the first quarter, said it had unrealised losses on its CLO portfolio of about ¥400 billion (€3.3 billion; $3.7 billion) as of March, and that it would refrain from making any new investments in CLOs.

Data snapshot

Oaktree – the breakdown. Oaktree Capital is up and running with its 11th Opportunities fund, as you will have read in Monday’s Loan Note. Here’s a reminder of the current make-up of Oaktree’s portfolio.

Essentials

It’s the age of distress. “Distressed funds set to flourish” proclaimed the headline of a press release detailing the findings of a new Intertrust survey in which 83 percent of respondents said they expected the climate for distressed fundraising to improve over the next 12 months. On the very same day, as if to prove the point, we published an exclusive on Balbec’s new $1.2 billion non-performing loan fund.

Another banker sees the light. In the opening edition of Loan Note on 1 June, we noted the departure of Associated Bank’s Marc Pressler for Monroe Credit Advisors in the US. The latest bank/debt firm switch is in the UK, where Simon Carrier is swapping Shawbrook Bank for DSW Debt Advisory.

Institution: South Carolina Retirement System
Headquarters: Columbia, US
AUM: $28.19bn
Allocation to alternatives: 26.0%

South Carolina Retirement System approved a $100 million commitment to Eagle Point Credit Partners in May, according to materials from the pension’s June investment committee meeting.

The fund manager, Eagle Point Credit Management, specialises in CLOs on both the equity and debt side.

The $28.19 billion US public pension has a 7.9 percent current and target allocation to private debt. It targets its private debt commitments on vehicles targeting senior lending in North America.

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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