Loan Note: Cliffwater weighs up the continuation fund opportunity; first close for Tunisian SME vehicle

Cliffwater finds less available capital but still keen interest in continuation funds. Plus: first closing achieved for a fund targeting Tunisian SMEs; and CVC and Tikehau both close new CLO-type vehicles. Here's today's brief for our valued subscribers only.

They said it

“We anticipate [private markets investors] will start to feel more comfortable, given more certainty in some of the macroeconomic factors, and the general acceptance that we are through the worst…”

From an email containing the opinions of Drew Schardt, head of global investment strategy and co-head of investments at Hamilton Lane, on prospects for private markets in 2023.

First look

A trend to follow: Cliffwater puts continuation funds under the microscope (Source: Getty)

Here we are, on the other sideWelcome to the first Loan Note of 2023! We trust our readers had a highly enjoyable and relaxing holiday period and are poised to take advantage of whatever opportunities the new year brings.In case you missed it, we ran a series of articles in recent weeks reflecting on the year gone by and some of the key trends we expect to shape the 12 months ahead. Here’s a flavour: why downside protection has a renewed focus in volatile timesthe ways in which debt financiers are preparing to cater to a changed private equity market; and why dealflow may slow as terms become more investor friendly.Rest assured Loan Note will strive to keep you ahead of all the major developments in private debt as the year unfolds. Do send any suggestions and ideas to We’d love to hear from you.

Cliffwater highlights continuation opportunityIn an evaluation of continuation vehicle investments, adviser and fund manager Cliffwater observes that “the opportunity set today appears greater than the universe of available capital”.The firm notes that demand for single and multi-asset continuation vehicles declined significantly in the second half of 2022 as limited partners faced the impact of public market declines. However, those investors still active in the space have greater choice and an ability to negotiate price and terms, according to Cliffwater.The piece notes that general partners remain interested in pursuing continuation vehicles as a way of allowing a management-friendly ‘exit’ without the need to refinance or change control provisions. Such vehicles “remain viable for quality assets as debt financings and public offerings are far more difficult”.Cliffwater notes that industry participants have published data suggesting that GP-led continuation vehicles have outperformed general partner funds. However, the firm questions whether meaningful performance data is available given that the sample size was only two continuation vehicles in vintage year 2018, four in 2019 and seven in 2020.According to Cliffwater, LPs have become more active in reviewing continuation vehicle offerings but many are also capacity constrained, both in terms of capital and team bandwidth.

Fund managers team up to target Tunisian SMEsLondon-based TLG Capital Investments and Tunisian asset management firm United Gulf Financial Services-North Africa have announced a first close of an undisclosed amount for a new fund that will provide financing for Tunisian small and medium-sized enterprises.The Empower Fund, which has CDC Tunisia as an anchor investor, will back SMEs with the potential to scale across the region and possibly across the whole of Africa. The fund will provide debt and mezzanine with equity upside as it seeks to achieve equity-like returns with a lower risk profile.In an email, TLG said the fund had four additional Tunisian LPs signed up at first close and would now be looking to select between eight and 12 SMEs for investments of between $2 million and $5 million.The fund will consider financial and social returns “hand in hand” and as well as being Gender 2X compliant is also aiming to address many of the UN’s Sustainable Development Goals.


CVC wraps up €400m loan vehicleJust before the holiday period, CVC Credit closed the Cordatus Opportunity Loan Fund, a long-term financing facility structured in a similar way to a collateralised loan obligation. The fund has expected purchasing capacity of around €400 million and has to date ramped around €175 million of assets at an average price of 91.9 percent.The fund was raised in partnership with Royal Bank of Canada and an unnamed strategic third-party investor. It took the aggregate value of new assets raised in 2022 across CVC Credit’s CLO platform to nearly €3.6 billion.CFO represents landmark in US for TikehauIn late December, Paris-based fund manager Tikehau Capital completed an inaugural $300 million collateralised fund obligation. The CFO contains interests in private debt funds that were mainly held on Tikehau’s balance sheet, including the flagship direct lending strategy and the private debt secondaries strategy.The rated debt and equity tranches of the CFO have been placed with large US institutional investors with Tikehau retaining part of the equity. Tikehau said the CFO represented a “new milestone” in the expansion of the firm in North America.

LP watch

Institution: Texas Municipal Retirement SystemHeadquarters: Austin, USAUM: $35.2 billion

Texas Municipal Retirement System has confirmed its pacing plan for 2023 as well as a $50 million commitment, according to its latest board meeting materials.

The US pension fund plans to invest $1.25 billion in the private debt market in 2023. The firm’s current allocation to private debt stands at 8.1 percent, which is below its target of 10 percent.

TMRS also confirmed a commitment of $50 million to Pemberton Mid-Market Debt Fund III. The pension fund has an existing relationship with the GP. Pemberton Asset Management is an independent asset manager focused on private debt and direct lending to European mid-market companies.

TMRS’ projected private market exposure sits at 39 percent currently, but is in line to meet its target of 44 percent.

Today’s letter was prepared by Andy Thomson with John BakieChristopher Faille and Robin Blumenthal