Loan Note: Direct lending capital is not excessive, firm finds; Stifel launches new business unit

Why Cliffwater believes there's definitely not too much direct lending; we present the final episode in our End of Cheap Money podcast series; plus QIC announces a new global head of private debt. Here's today's brief for our valued subscribers only. 

They said it

“It appears we’re in a transition phase: from a bull to a bear cycle for the US dollar. This will shift the global investment environment in a profound way”

Nigel Green, CEO and founder of deVere Group, the independent financial advisory and asset management firm

First look

Too much direct lending? Think again
“Is there too much money flowing into direct lending?” This is the question that US investment and advisory firm Cliffwater says it has been asked the most over the past decade. And the answer, according to research from the firm, appears to be a fairly emphatic ‘no’.

Given that most direct lending fuels private equity deals, the firm measured the amount of direct lending capital relative to the private equity ecosystem. What it found was that at the end of 2021, US direct lending capital was providing only around 35 percent of the demand for US buyout financing.

Furthermore, at the same time, US private debt fundraising was less than 50 percent of US buyout financing; and, when it came to dry powder, private debt capital reserves were only around 25 percent of the total reserves for US buyouts.

“Private direct debt doubled as a percent of US buyout equity needs after the 2008 financial crisis, as bank lending retreated, but has remained a consistent percentage over the last decade,” according to Cliffwater. Too much capital chasing too few deals? No sign of it here.

Listen to our latest podcast
In the final episode of our podcast series, Private Markets and the End of Cheap Money, we hear from LPs and GPs who share what key indicators they keep their eyes on to help make sense of the rising interest rate environment.

Executives from Corsair Capital, BC Partners, British Columbia Investment Management Corporation, Investment Management Corporation of Ontario, MidEuropa Partners, RIAM Alternatives and Oaktree Capital Management told us what signs and signals they look for. These include: inflation, currency moves and, surprisingly, the temperature at which people are setting their thermostats in Europe, and unsolicited offers for portfolio companies.

All five of the podcasts in the series can now accessed here.

Stifel launches agency structured products group
Stifel Financial has launched an agency structured products group, with a mandate to expand the firm’s footprint in agency commercial mortgage-backed securities and expand its fixed-income origination products and services.

The publicly traded financial services group said in a statement that the agency structured products group will be based in New York, and will be co-headed by former Credit Suisse executives Karen Cady and Russell McKay. Kavitha Vignarajah and Serif Ustun, also formerly of Credit Suisse, have joined the firm as managing director and director, respectively.

The group will be responsible for buying and securitising Ginnie Mae project loans, as well as underwriting loans for government-sponsored enterprises and the US Small Business Administration.

The launch of the group “is fuelled by a desire to meet client needs and continue to grow our fixed income product offering”, said Eric Needleman, global head of fixed income capital markets. He noted that the new team “brings tremendous industry experience and deep CMBS product knowledge” to Stifel’s fixed income platform.

Cady spent 27 years at Credit Suisse, where she was a director in the securitised products trading group. In that role, she was part of the agency CMBS team, where she was responsible for underwriting and pricing loans and debentures and underwriting, securitising, and trading the firm’s agency multifamily mortgage-backed securities. She began her career at DLJ Securities and Smith Barney.

McKay was head of the agency CMBS trading and syndicate desk at Credit Suisse, where he was responsible for trading, structuring, and new-issue syndication of Ginnie Mae, Fannie Mae, and Freddie Mac ACMBS, as well as SBA and Small Business Investment Company products. Before Credit Suisse, he was a trader on Brean Capital’s ACMBS trading desk, and worked at Deutsche Bank for 10 years in multiple roles.

Managing director Vignarajah served as part of the securitised products team at Credit Suisse, Goldman Sachs, Morgan Stanley, JPMorgan and Bear Stearns. She brings “deep experience” covering a variety of asset classes, including government-guaranteed and private-label CMBS.

Director Ustun started his career in 2002 at the fixed income research department at Credit Suisse, where he was an analyst in the securitised products group covering private-label CMBS and collateralised debt obligations, and was lead research analyst for ACMBS from 2011.


La Greca is new private debt head at QIC
Australian fund manager QIC has appointed Simon La Greca as global head of private debt. He joins from Ares Management, where he was partner and head of infrastructure debt Asia.

At Ares, La Greca was responsible for investing in mezzanine infrastructure debt assets, attracting investors to infrastructure debt funds, and leading the buildout of the investment team in Asia.

He was a founding member of the AMP Capital infrastructure debt platform, which was acquired by Ares in February 2022.

La Greca’s appointment follows the decision of Andrew Jones, QIC’s former global head of private debt, to transition to a new role as deputy chair of QIC’s private debt investment committees and strategic advisor.

Jones’ 30-year career has included the build-out of QIC’s private debt strategy and team, which he has led for almost two years.

In 2021, QIC launched its private debt capability with an initial global infrastructure debt offering. It has since launched a multi-sector private debt capability offering a steady, high-yielding income stream and capital stability from a diversified portfolio of floating-rate corporate and leveraged loans, asset-backed securities and real estate debt.

QIC Private Debt has $850 million in committed capital and assets under management with investment professionals in Australia, the US and the UK.

Mesa West raises its largest fund
Los Angeles-based Mesa West Capital, the private US real estate credit arm of Morgan Stanley Investment Management, has raised around $1.37 billion for Mesa West Real Estate Income Fund V, exceeding its original $1.0 billion fundraising target for the fund.

Fund V is the largest in Mesa West’s closed-end value-add series, which was established in 2005, and is the first successor vehicle raised by the firm since joining Morgan Stanley Investment Management. Surpassing the $900 million in commitments raised for Mesa West Real Estate Income Fund IV, Fund V’s investors include domestic and international public and private pension funds, insurance companies and individual investors.

Fund IV was delivering an internal rate of return of 7.6 percent and total value to paid in capital (TVPI) of 1.25x as at 31 March 2022, according to Santa Barbara County Employees’ Retirement System.

Fund V has been established to originate, purchase and manage loans secured by value-add/transitional commercial real estate assets throughout the US, which has seen increased demand due to regulatory changes resulting from the global financial crisis and the current volatility and dislocation in the capital and property markets. The fund intends to create a diversified portfolio of investments producing current income and attractive risk-adjusted returns.

Restructuring hire for Paul Hastings
Law firm Paul Hastings has added Helena Potts as a partner in its London restructuring practice.

Potts focuses on high-value, complex, cross-border matters across the full range of stressed and distressed situations, from insolvent liquidations to consensual restructurings and new money opportunities, with broad experience across all types of capital structures.

Her experience spans diverse industry sectors, including automotive, financial services, retail and leisure, manufacturing, and oil and gas.

Potts joins from Shearman & Sterling and is the London office’s third new partner in 2023, following infrastructure and energy lawyers Jessamy Gallagher and Stuart Rowson.

LP watch

Institution: Los Angeles County Employees’ Retirement Association
Headquarters: Pasadena, US
AUM: $68.87 billion

Los Angeles County Employees’ Retirement Association (LACERA) has committed $75 million to Clearlake Opportunities Partners III – Co-Investment, according to recent board material.

LACERA is the largest county retirement system in the US, with more than 156,000 members. Established in 1938, it provides retirement, disability and death benefits to eligible Los Angeles County employees and their beneficiaries.

Clearlake Opportunities Partners III, managed by Clearlake Capital Group, will invest in the consumer goods, industrial and TMT sectors across North America.

LACERA has an 11.5 percent allocation to private debt, comprising $7.92 billion in capital. Its recent private debt commitment strategy has been focused on North America, with distressed and royalties vehicles that invest in a variety of sectors.

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