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Loan Note: Europe may benefit from volatility; UK pension schemes keen on illiquid assets

European deals to defy the headwinds according to a new survey. Plus: UK pension funds want a greater exposure to illiquids and British Business Bank appoints a new chief executive officer. Here's today's brief for our valued subscribers only.

They said it

“Deglobalisation makes the expanses of the European market an indispensable investment area”

Thomas Friedberger, co-chief investment officer and chief executive officer of Tikehau Investment Management, in an insight piece arguing that the EU represents a major investment opportunity in the coming era of deglobalisation.

First look

Bullish on Europe: deals in the region expected to hold up (Source: Getty)

Optimism around European dealflow
Given that it was home to the outbreak of an unexpected ground war, it’s perhaps unsurprising that Europe was identified as the region that might suffer the most in the face of the bewildering array of challenges that the world currently confronts. However, perhaps because of the tendency for investment opportunity to arise out of disruption and dislocation, respondents to law firm Proskauer’s 2022 Private Credit Survey cited Europe as the region where private debt deal activity is expected to hold up best.

While the survey found only 30 percent of respondents expecting an increase in private debt dealflow globally this year, 50 percent of those in the UK and mainland Europe expect an increase. In the US, the figure is just 26 percent. Worth bearing in mind, of course, that last year set new records for deal activity so the bar is set high. The biggest reasons for optimism when it comes to dealflow are the large amount of dry powder plus sponsors seeking realisations and industry-specific trends.

Despite the macroeconomic headwinds, the survey found that competition remained the greatest challenge cited by dealmakers for the fifth year in a row. Nearly 42 percent of US, EU and UK respondents said competition was the biggest issue, followed by high transaction multiples in second and a lack of quality assets in the market in third.

UK pension schemes upping illiquid allocations
Private markets are set to receive a funding boost from local government pension schemes in England and Wales, with 91 percent saying they will increase their allocations over the next five years.

Research from real assets manager Alpha Real Capital found that 60 percent of these pension schemes are expecting to increase their allocations over the five-year period by between 5 and 10 percent.

The study confirms the attractiveness of illiquid assets due to their strong returns and diversification benefits in an increasingly volatile world. A study by the same manager last year found 58 percent of UK professional pension fund investors were already allocating up to 25 percent of total assets to illiquid assets, while 37 percent were allocating up to 10 percent.

Greater transparency was cited as the main reason for increasing allocations by 79 percent of investors, while 69 percent highlighted more opportunities to invest in illiquid assets and 44 percent pointed to a growing desire to diversify their portfolios.

Essentials

New CEO for British Business Bank
Louis Taylor has been appointed chief executive officer of British Business Bank, the UK’s economic development bank, and will take up the role from 1 October this year.

Taylor is currently chief executive officer of UK Export Finance, having joined the export credit agency and UK government department in 2015 after having held senior roles at Standard Chartered Bank and JPMorgan.

Taylor will take over from Catherine Lewis La Torre, who was appointed interim chief executive officer of the bank in September 2020 to oversee a phase of its development before commencing the search for a permanent chief executive officer.

Through its British Business Investments unit, BBB has been a major supporter of emerging private markets fund managers in the UK, including in private debt.

AllianzGI reaches up to €1bn for trade finance
Allianz Global Investors has revealed that its trade finance fund, the Allianz Working Capital Fund, is currently managing €500 million and has won additional mandates, which may bring total assets to €1 billion.

The strategy, launched in April 2019, involves investing in obligations financing the working capital and commercial trade contracts for both small and medium-sized enterprises to large corporates.

The ultra-short duration, open-ended strategy invests in a range of trade finance instruments including invoices, receivables-backed loans, factoring, documentary credits, notes, bonds and other instruments.

Daly to lead CIFC push in Europe
New York-based fund manager CIFC Asset Management has recruited Conor Daly as head of European credit. Daly becomes managing director and senior portfolio manager overseeing the firm’s European investment business. Based in London, he will report to Steve Vaccaro, CIFC’s chief executive officer and chief investment officer.

Daly had only joined Onex Credit last year, where he was managing director and head of European credit as well as being lead portfolio manager of the European collateralised loan obligation business. Prior to that, he spent eight years at BlackRock Investment Management, helping establish the firm’s European CLO and leveraged loan business.

CIFC has $40 billion in assets under management and opened its London office in 2018.

LP watch

Institution: Maine Public Employees Retirement SystemHeadquarters: Augusta, USAUM: $18.8 billionAllocation to alternatives: 39.2%

Maine Public Employees Retirement System confirmed a $125 million commitment to Comvest Credit Partners VI, a contact at the pension informed Private Debt Investor.

Comvest Partner‘s latest fund launched in March of this year and is targeting $1.7 billion. The fund will focus on corporate opportunities in North America with senior debt returns. Its predecessor, Fund V, closed on $1.3 billion in April 2021.

MainePERS has a 5.1 percent allocation to alternative credits and a 7.9 percent allocation to traditional credit.

MainePERS’ recent private debt commitments have tended to focus on North American corporate vehicles.


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