Loan Note: Diversity is about performance too; notes from the China frontline

Why taking diversity issues seriously can improve performance. Plus, a fund manager reports from China and debt strategies see price falls on the secondary market. Here's today's brief for our valued subscribers only.

They said it

“Records in nearly every financial measure, concluding a very strong year despite the challenging economic and market conditions brought on by the global pandemic.”

Michael Arougheti, chief executive and president of Ares Management, commenting on the firm’s quarterly and full-year earnings. See here for our coverage.

First look

The proof: DEI drives better performance
Fairness equals better performance. That is one of the conclusions to be drawn from a new The Power of Change white paper from consultancy Mercer. Focusing on diversity, equity and inclusion issues, the paper notes that “evidence supporting the positive impact DEI has on private market performance is mounting”.

The paper says recent research suggests diverse teams make better decisions and are less likely to be influenced by unconscious biases. What is more, this is not just theory but backed by data. The report points to a National Association of Investment Companies study that found diverse funds producing out-performance against various cited yardsticks between 1994 to 2018.

Mercer suggests LPs have the power to force change through the way they choose to invest. Raelan Lambert, global alternatives leader at Mercer, says: “By creating a private markets DEI investment programme, institutional investors can send a strong signal to asset managers that diversity is a priority.”

Notes from China: a storm weathered 
Want to know what is happening on the ground in China? Grant Chien, head of special situations financing at Hong Kong-based InfraRed NF Investment Advisers and a Private Debt Investor 2019 Rising Star, has shared the following thoughts:

  1. From economic and healthcare perspectives, China has weathered the covid-19 storm. Subject to vaccination policies, locals are sensing recovery but believe it maybe Q3 to Q4 2021 before pre-covid times return.
  2. Making trips is complicated. Locals miss international travel but perception towards the West is changing. Global covid reactions, trade war and US elections, mean the Chinese are more focused on themselves than before. The scale, speed of change and diversity of Chinese real estate has meant the execution capabilities of Western capital are questioned. Most Chinese can name eight states or cities in Europe or the US. Does the reverse apply?
  3. In Asia, where real estate private equity’s history is relatively short, post-covid takeaways can improve future deal documentation, risk detection methodologies and elicit better outcomes. Vigilance will be required for a new wave of exceptional special situation opportunities in 2021.

Secondary debt pricing nudges lower
Most private debt-related strategies appear to have been showing modest price falls on the secondary market between the end of 2019 and end of 2020, according to the latest price report for Q4 2020 from investment bank Setter Capital.

It showed pricing falls of 5.17 percent for mezzanine, 5.84 percent for special situations and 7.09 percent for turnarounds. Distressed credit, meanwhile, showed an increase of 0.49 percent. The biggest price increase in the Setter fund universe was shown by cleantech (up 11.57 percent), while the biggest faller was energy (down 12.55 percent).

Data snapshot

Fundraising fears. Private debt managers in the SME and lower mid-market space have seen a significant worsening in their fundraising outlook as a result of the covid-19 pandemic, according to research by the British Business Bank. While pre-pandemic, most managers were positive about the fundraising environment, sentiment has now changed significantly with many unsure and the number of managers stating it is poor increasing from 1 to 16.

Essentials

Zens to lead Tikehau CLO business
Paris-based fund manager Tikehau Capital has appointed Christoph Zens as head of its collateralised loan obligation business. Zens, who will be based in London, will assume the role from Debra Anderson who is set to retire in the second quarter of this year. Zens joins from Commerzbank where he spent more than a decade, latterly as an investment director within the debt fund management team, which he helped to build and develop.

Schwimmer, Linett step up at Churchill
US fund manager Churchill Asset Management has named Randy Schwimmer, senior managing director, head of origination and capital markets, and Mathew Linett, senior managing director, head of underwriting and portfolio management, as co-heads of senior lending.

Schwimmer, one of Churchill’s founding partners, will remain focused on origination and capital markets initiatives, continuing to lead a team of seven origination and capital markets professionals. Linett has been with Churchill since the firm became an affiliate of Nuveen in 2015 and brings more than 25 years’ leveraged finance experience with a strong focus on the mid-market.

Aviva Investors has new real assets CIO
Aviva Investors, the global asset management business of Aviva, has appointed Daniel McHugh as chief investment officer of its £47.3 billion ($66.98 billion; €54.78 billion) real assets business. This follows the appointment in January of former real assets chief investment officer, Mark Versey, as chief executive officer, Aviva Investors.

In his new role, McHugh – who joined Aviva Investors as a managing director of real estate in 2018 – will report to Versey and will be responsible for the strategy and growth of Aviva Investors’ integrated real assets business, encompassing real estate, infrastructure and private debt. He will oversee around 300 professionals working across fund management, asset management, development, transactions, origination, underwriting, research and business management. He will also join the Aviva Investors executive team.

CVC Credit prices Apidos CLO fund
Fund manager CVC Credit has priced Apidos XXXV, its first CLO fund this year, at $500 million. The issue increases the firm’s US CLO assets under management to $10.5 billion. The new fund, which CVC said generated strong oversubscription across the liability stack, brings CVC Credit’s pro forma global CLO assets under management to more than $18 billion. The manager said the strong interest in the Apidos CLO vehicle allowed it to price all debt tranches at the tight end of guidance. In 2020, CVC Credit raised about $2 billion through five new CLO funds, and said it is hopeful that 2021 will be an even stronger year for new issuance.

LP watch

Institution: Alaska Permanent Fund
Headquarters: Juneau, US
AUM: $74.89 billion
Allocation to alternatives: 29.34%

Alaska Permanent Fund has confirmed a commitment of $50 million to Ares Capital Europe V, according to a document from a February board meeting.

The $74.89 billion sovereign wealth fund has a 2.8 percent target allocation to private debt that currently stands at 2.3 percent. APFC is underweight in private debt, infrastructure and private real estate, but overweight in private equity.

APFC devotes 29.34 percent of its full investment portfolio to alternative assets. The institution has a strong appetite for North America-focused corporate and real estate debt funds.


Today’s letter was prepared by Andy Thomson with John Bakie and Robin Blumenthal.

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