Loan Note: ESG key consideration for private debt in 2021; BlackRock’s thoughts on credit outlook

Positive ESG moves from Kartesia, deVere Group and the European Leveraged Finance Association. Plus, BlackRock's credit outlook and two US fund managers ramping up activity. Here's today's brief for our valued subscribers only.

They said it

“We are hoping to work with Tikehau to source debt financing opportunities from European private equity firms as they look to invest in US businesses. We also see an opportunity to work with them co-operatively on global credit investor mandates”

Ken Kencel, president and chief executive of Churchill Asset Management, on his firm’s strategic partnership with Tikehau Capital. Read more about it here

First look

ESG moves up the agenda 
Plenty of evidence is emerging that environmental, social and governance issues will be front of mind for private debt firms in 2021. At European fund manager Kartesia, for example, Coralie de Maesschalck has been handed a full-time role looking after corporate social responsibility and ESG issues. She has had a part-time focus on ESG since 2015, which she combined with being head of portfolio.

De Maesschalck will be in charge of CSR initiatives at the corporate level, ESG criteria at the portfolio level and internal procedures. “We see good ESG as an important element of managing investment risk and ensuring our portfolio companies are equipped for the future,” said Kartesia managing partner Damien Scaillierez in a statement. “Whilst it is a core value of all our investment team, having Coralie dedicated to ESG going forward will ensure that it remains fully integrated into the investment process and significantly growing portfolio.”

Financial advisory firm deVere Group last week said it would offer “free, independent advice” to clients on socially responsible investing, with the aim of “positioning $1 billion in environmental, social and governance investments within five years”.

Meanwhile, the European Leveraged Finance Association last week held the first meeting of its newly formed private debt committee, at which ESG was high on the agenda. The meeting explored possible synergies with ESG initiatives being developed in the leveraged finance market.

BlackRock’s tips for the year ahead
The yearly outlooks keep coming and BlackRock’s is always worth looking out for (see here). Here are three 2021 credit themes it highlights, along with the message “Stay nimble and carry on”:

(Re)building portfolios for income: Insufficient yield in fixed income is forcing investors to rethink portfolio design while incorporating a greater allocation to credit.

Sustainability to the fore: Growing investor demand and increasing issuer transparency are driving ESG standards to the forefront of credit investing (very much in line with our observations above).

Opportunities in Asian credit: Opening up of the Chinese onshore markets and attractive yield profiles across the region are increasing opportunities in Asian credit.

Big numbers for Golub, Churchill
Looking for signs of deal activity picking up? You may not have to look further than a couple of the US’s big names. Chicago-based fund manager Golub Capital announced what it described as “record deal activity” in the fourth quarter of 2020, when it originated more than $7 billion of retained and syndicated commitments and closed 70 new and add-on transactions.

Meanwhile, New York’s Churchill Asset Management said it had closed or committed $6 billion to new investments last year and raised more than $6.4 billion in new committed capital – more than double its fundraising figure for 2019 – with another $2.2 billion expected in the first quarter of 2021.

Data snapshot

Fundraising not immune to covid: With the pandemic taking its toll, global private debt fundraising fell to its lowest level for many years in 2020. The total amount raised tumbled to $148.7 billion from $198.4 billion in 2019, while the total number of vehicles that raised capital went down from 276 to 181. See our take on it here.


Deals down but Partners points to strong pipeline
Partners Group invested $8.6 billion across private markets last year as covid hit deal activity. In 2019, the Switzerland-headquartered private markets specialist invested $14.8 billion. However, the firm saw a good level of activity in the first and fourth quarters and said it had a strong pipeline heading into 2021. It invested $2.1 billion last year in corporate debt. Private debt accounted for 23 percent of the firm’s total assets under management at the end of last year. Read more here.

New hire for CAPZA in Italy 
Stefano Zavattaro has joined Paris-based CAPZA as a partner and country manager to work on investments in Italian SMEs and support the trans-alpine development projects of CAPZA’s French, Spanish and German portfolio companies. He was previously at GE Capital, Siparex and Crédit Agricole Group and, since 2014, has been advising international investment houses on their Italian and European projects. He joins associate Tommaso Galletta in the Milan office, where he will further develop the team with new hires.

LP watch

Institution: Texas County and District Retirement System
Headquarters: Austin, US
AUM: $29.06bn
Allocation to alternatives: 46.7%

Texas County and District Retirement System has agreed to commit $100 million to Incline Aviation II Fund, the pension’s latest activity report states.

The $29.06 billion US public pension has a 25.0 percent target allocation to private debt that currently stands at 23.90 percent.

The pension fund’s recent commitments are to vehicles focused on the corporate and real estate sectors in Europe and North America.

Institution: New Hampshire Retirement System
Headquarters: Concord, US
AUM: $9.34bn
Allocation to alternatives: 28.5%

New Hampshire Retirement System has approved a $50 million commitment to Monroe Capital Private Credit Fund IV, as mentioned during the institution’s December 2020 investment committee meeting.

This commitment was made to one of the institution’s existing managers, Monroe Capital. The pension has made previous commitments to Monroe Capital Private Credit Fund III and Monroe Capital Private Credit Fund II.

The pension’s recent commitments have been to senior and distressed debt vehicles targeting the corporate sector. NHRS has a 5.0 percent target allocation to private debt that currently stands at 6.1 percent.

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

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