Loan Note: Europe’s unitranche boom grinds to a halt; Investors increase private manager searches

They said it

“Last year we experienced, to an extent, a global polycrisis where various risks combined, were amplified as a result, and manifested in significant asset falls”

Marisa Hall, head of the Thinking Ahead Institute, quoted in the Global Pension Assets Study, conducted by the Thinking Ahead Institute and WTW

First look

Unitranche takes a dive: European deals saw a big drop as banks staged a comeback (Source: Getty)

Europe’s unitranche deals drop 28% in Q4
Pan-European unitranche financing fell by 28 percent during the final quarter of 2022 according to the latest Houlihan Lokey MidCapMonitor.

Worsening macroeconomic conditions led to a severe reduction in deal volumes during the final three months of the year, particularly in the UK and France, Europe’s largest markets.

There were 91 transactions during Q4 2022, down from 127 in Q3, with the UK seeing a fall in deal numbers of 39 percent, France down 34 percent and the Benelux seeing a 22 percent reduction in activity.

However, despite a tough final quarter, deal volume for the whole of 2022 saw 460 total financings, only 5 percent lower than in 2021, which was a record year with 486 deals.

While the UK experienced a sharp reduction in activity, it remains the largest market in Europe with 27 deals in Q4 2022, while Germany followed with 21 and France was in third place with 19 transactions.

Interestingly, 2022 saw a slight comeback from banks in financing mid-market deals in Europe’s largest markets. In the UK, banks increased the number of deals between 2021 and 2022 from 72 to 82, while debt fund financings covering both unitranche and senior financing fell from 180 to 146 over the same period. Despite this, debt funds remain dominant players in the UK market. The total number of financings in the UK fell from 252 deals in 2021 down to 228 in 2022.

Germany saw a less pronounced shift, with bank financings increasing from 60 to 71 from 2021 to 2022, while debt fund deals dropped from 98 down to 88. Germany also saw a stronger Q4 than other jurisdictions, with transaction numbers between Q3 and Q4 rising 29 percent from 31 to 40, though this was following a slow third quarter.

France saw deal volumes grow overall in 2022 to 211 transactions, up from 175 in 2021. Debt funds also increased market share and now account for 48 percent of the market.

Investors maintain faith in private markets
There has been no let-up in investors searching for private markets managers, according to the latest quarterly analysis by consultants bfinance.

The firm, which tallies up the number of manager searches requested by clients, found searches for illiquid strategies increasing to 58 percent of all new mandates last year, compared with 49 percent in 2021. In 2017, just over one-third of searches were for illiquid strategies.

Private debt was especially popular with clients, representing 28 percent of all private markets search activity last year. But while this made it the most popular private market asset class, the number was down on the 34 percent recorded in 2021.

A big decline was seen in searches for equity managers – reduced to 15 percent of new mandates last year, the lowest total bfinance has ever recorded – as searches for fixed-income managers showed a slight increase. Bfinance said investors were shifting their sights from inflation to the prospect of recession and becoming more defensive – albeit that there are hopes of a so-called ‘soft landing’.

One area noted by bfinance as particularly strong is ESG and impact investing, with the firm seeing ongoing appetite for impact private equity, carbon offsetting and carbon- or climate-orientated equity strategies. Also popular was emerging market private debt, representing 40 percent of all fixed-income manager searches last year – up from 29 percent in 2021. 


Hire for Pemberton NAV team
Pemberton, the London-based fund manager, has appointed Pavol Popp as a portfolio manager for its net asset value financing strategy, which was launched last year.

Popp has more than 23 years’ experience in banking and finance, having established and managed diverse business lines across secured financing, structured credit and financial derivatives structuring, as well as asset and liability management. His responsibilities in the NAV team will include selection, structuring and risk management of investments.

Popp was a managing director at JPMorgan, where he spent 19 years in various leadership roles, including as global co-head of financing solutions and head of EMEA structuring.

Ex-Goldman veteran made president at Star Mountain
Star Mountain Capital, an investment firm focused on small and medium-sized North American businesses, has announced the appointment of George Mattson as president. Mattson has been a long-time investor and senior adviser to the firm and, in the newly created role, will work on all aspects of the firm’s activities including strategy, investment analysis, portfolio management, talent development, investment origination and investor relations.

Mattson boasts a 35-year career. After six years at IBM, he spent 19 years in investment banking including 10 years as a partner at Goldman Sachs, where he formed and co-headed the Global Industrials Group. Mattson worked closely with Goldman Sachs’ merchant bank and other principal investment businesses on equity investment and debt lending opportunities within the broad range of businesses and sectors he covered.

Muzinich boosts UK team
Fund manager Muzinich & Co has appointed Rob Judson to its UK Private Debt team, covering the North of England.

Judson joins from Barclays’ Corporate Banking division, where he was a relationship director responsible for originating new business and supporting the structuring and execution of debt transactions in the technology, media and telecoms sectors.

“Rob is a great addition to the team and reflects our commitment to continuing to invest in the North of England and our wider private debt platform,” said James Adams, director for Muzinich UK Private Debt.

US consumer worries rise on bills and credit card debt
Inflation is taking a toll on US households, with consumer spending significantly exceeding its historical trend relative to disposable income, Fannie Mae found as part of its National Housing Survey in 2022.

Indeed, while the Federal Reserve found that  consumer credit – mostly credit card debt – jumped 17 percent on an annual basis in November, the fastest pace since 1996, the savings rate last autumn plunged to 2.4 percent, a near-record low compared with the more typical 7-9 percent.

In the third quarter of 2022, some 35 percent of respondents were very or somewhat stressed about their ability to make debt payments – primarily credit card debt. That represented an increase of 10 percentage points from the survey in Q2 2020, the last time Fannie Mae asked the question, and was higher than it has been historically.

Consumers’ concerns about affording basic necessities were focused on gas, food and medical care, with more than one-third of respondents in September expecting their ability to pay for those needs will be impacted in the 12 successive months, the survey found.

At the same time, 26 percent of consumers in September expressed concern about making future mortgage or rent payments, increasing from 18 percent in April. At 39 percent, renters were far more worried about making payments than the 22 percent of mortgage holders.

Moreover, a growing percentage of mortgage borrowers reported being stressed about their ability to make debt payments and to save money. Fannie Mae concluded that this suggests that a growing share of current borrowers “may be vulnerable to becoming delinquent on their mortgage payments” if they were to lose their jobs or other income.

LP watch

Institution: Teachers’ Retirement System of the State of Illinois
Headquarters: Springfield, US
AUM: $64.06 billion
Allocation to private debt: 6.7%

The Teachers’ Retirement System of the State of Illinois has committed $250 million to Ares Multi-Credit Fund, according to a source from the public pension.

Ares Management is a Los Angeles-based asset manager with $352 billion in assets under management. The firm launched its latest multi-credit fund in December 2022, with the strategy of mezzanine debt.

The commitment marks TRSIL’s new relationship with Ares Management. In 2022, the pension fund committed nearly $2.5 billion to private debt strategies with a regional focus on North America.

TRS Illinois allocates 6.7 percent of its assets to private debt, amounting to $4.29 billion in capital.

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