Loan Note: Debt financing worries for PE; InterVest closes new fund

Eaton Partners finds PE firms worrying about the tightened credit environment. Plus: a new fund close for InterVest; and Connection Capital concludes high-net-worth investors are still hungry for alternative investments. Here’s today’s brief for our valued subscribers only.

They said it

“As was seen throughout 2022, we believe that direct lending volumes for sponsored activity and LBOs will continue outpacing syndicated loan transaction volumes”

Taken from Monroe Capital’s Monthly Market Update for July 2023

First look

A slower flow: availability of debt finance biggest concern for PE (Source: Getty)

Fretting over debt
The biggest threat to PE performance? The tightening credit environment. That’s according to Eaton Partners’ latest LP Pulse Survey, which found 82 percent of LPs identified debt financing as PE’s greatest risk, followed by recession (59 percent) and declining distributions or liquidity (39 percent), as reported by our colleagues on Private Equity International. Here are some other key findings:

  • More than 60 percent of LPs expect no change in their PE allocation over the next six to 12 months, while 21 percent said they will cut allocations modestly.
  • Among PE strategies, LPs look to increase their allocations in 2024 to buyouts (65 percent), growth equity (39 percent) and distressed or special situations (30 percent).
  • Healthcare is the most favoured sector at 80 percent, followed by industrials at 60 percent and impact/energy transition at 35 percent.
  • Team cohesion, risk-adjusted returns and the firm’s GP commitment are currently the top three considerations for LPs when picking a manager.

InterVest closes second real estate credit fund on $400m
InterVest Capital Partners has held a final close for its second real estate credit fund on $400 million, exceeding its $300 million target and reaching its hard-cap, according to a statement.

The predecessor fund, launched in 2017, was similarly oversubscribed, closing above its $200 million target on $230 million.

The newly launched real estate credit fund targets debt and preferred equity investments in a range of property types: residential, commercial and industrial.

InterVest is a New York-based manager, founded in 2012, with total AUM of $6.4 billion, according to Private Debt Investor research.

The firm’s website says that prior to 2012 the management team was part of the structured finance and business development division of Wafra.

Brookstone prepares to liquidate four ETFs
Brookstone Asset Management, a division of Brookstone Capital Management, announced that in preparation for the liquidation of four of its exchange traded funds on 16 October 2023 it will end trading in those ETFs on 6 October.

The liquidation is part of the July 2020 merger agreement between Brookstone and FormulaFolios, two turnkey asset management platforms.  The agreement created a combined entity under the Brookstone name, using the FormulaFolios brand for its asset management division. This was part of a wave of consolidation in the TAMP space at the time. As of December 2022, Brookstone had total assets under management of $7.5 billion, according to its website.

The funds are: FormulaFolios Hedged Growth, FormulaFolios Smart Growth, Formula Folios Tactical Growth and FormulaFolios Tactical Income. The board of trustees of the Northern Lights Fund Trust IV has authorised their orderly liquidation.

The funds trade on the Cboe BZX Exchange. That will end on 6 October, as will the funds’ acceptance of creation units from authorised participants.

Essentials

HNWIs still hungry for alternatives
High-net-worth investors continue to demonstrate a strong appetite for alternative investments, according to a new survey from Connection Capital.

The survey found that 76 percent of HNWs are targeting an allocation to alternatives of more than 10 percent of their total portfolio, while 40 percent of HNWIs are aiming for an allocation of more than 20 percent.

The two main reasons cited for the popularity of alternatives were diversification from quoted markets (73 percent) and targeting outsized capital returns (69 percent).

Single-asset private equity transactions were the most sought-after transaction type, according to the survey – especially those in the technology and health sectors. Private equity buyout and growth funds came next on the priority list.

Asked about the greatest threats to alternative asset performance over the next 12 months, those surveyed identified interest rates as the biggest threat at 62 percent.

UK-based Connection Capital advises private investors on access to alternative investments.

Monroe bolsters tech team
Chicago-based fund manager Monroe Capital has expanded its technology finance originations group with the addition of Jeff Kaye as managing director. He will be responsible for originating, structuring and executing new investments within the software and technology sector.

Kaye was previously a managing director at Wells Fargo Capital Finance in its Financial Sponsor Coverage group where he was responsible for originating recurring revenue and cashflow-based financing opportunities in the West and Midwest regions. He has over 17 years of experience in commercial lending, having begun his career with Ally Commercial Finance where he supported origination, underwriting and portfolio management efforts.

“He will help us continue to grow our robust direct origination platform, and specifically the software and technology vertical, that we have built throughout the US,” said Tom Aronson, vice-chairman and head of originations at Monroe Capital.

LP watch

Institution: Quincy Retirement System
Headquarters: Quincy, US
AUM: $810 million

Quincy Retirement System has committed $4 million to Torchlight Debt Fund VIII, according to recently published meeting minutes.

The fund launched in May 2022 and held a first close in December 2022 on $858 million. The real estate sector-focused fund has a senior debt strategy that covers the North American region.

Platinum subscribers may click here for the investor’s full profile, including key contacts, allocation strategy and fund investments.


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