Loan Note: Find out what LPs think in our latest study; debt secondaries buck the downward trend

Our Perspectives study shows investors impressed by private debt's performance versus benchmarks; Setter Capital reveals debt is the only growing secondaries market in the alternatives universe; and Generali launches its second CRE debt fund. Here's today's brief for our valued subscribers only. 

They said it

“A Friday feeling of optimism has surged through markets… after US jobs growth powered ahead, and investors shrugged off recession worries”

Susannah Streeter, senior investment and markets analyst at financial services firm Hargreaves Lansdown, commenting on market bullishness at the end of last week

First look

LPs remain bullish: Our Perspectives study reveals strong support for the asset class (Source: Getty)

Our Perspectives study: A vote of approval
In an era of macroeconomic uncertainty and geopolitical instability, private debt is coming of age. While investors might be talking more than ever of being overallocated to private credit, a massive 89 percent of the allocators interviewed in Private Debt Investor’s LP Perspectives 2023 Study will either keep their investment the same or invest more capital in the year ahead.

What is more, despite market turbulence, in this year’s survey fewer than one in 10 LPs report private debt performing below benchmarks last year, and 39 percent say it exceeded them – the best results we have seen over the past six years of our report.

Limited partners do have worries going into 2023, however. They are fearful of the impact of rising interest rates, inflation and recession on their private markets portfolios. Nonetheless, in the year ahead, almost half (47 percent) of LPs plan to increase their investments in direct lending strategies.

Debt secondaries lead the way
While the secondaries market overall went into decline last year, the one part of the market in rude health was debt fund secondaries, with an increase of more than 30 percent from $2.55 billion of deals to $3.33 billion between 2021 and 2022 according to the latest Setter Volume Report from Toronto-based secondary advisory firm Setter Capital.

Secondaries deals in the alternatives market totalled $101.5 billion in 2022, according to Setter, down from $143.4 billion the previous year. All types of alternative investments saw falls in secondary volumes, with the exception of debt.

Private equity secondaries fell almost 30 percent last year to $93.7 billion, while real estate, hedge funds and agriculture/timber saw big declines of between 39.5 percent and 56.7 percent. Infrastructure also witnessed a slight decrease, but only by 0.9 percent, with $4.5 billion of volume.

The current year is forecast to see activity totalling just over $129 billion, which would represent something of a recovery, although not a return to 2021 levels.

Generali launches second CRE debt fund
Milan-based fund manager Generali Real Estate has launched its second commercial real estate debt fund, Generali Real Estate Debt Investment Fund II, with a target size of €1 billion.

Generali Real Estate Debt Investment Fund, the predecessor to GREDIF II, raised €1.45 billion from Generali Group companies and third-party clients and is now fully deployed in European assets.

The latest fund targets senior debt loans with loan-to-values of up to 60 percent and variable rates. The fund invests across Europe, mostly in continental Europe but also in the UK, and mainly focuses on the office, logistics and residential sectors. The fund recently closed its first deal in France.

GREDIF II is an SFDR Article 8 fund with an investment process that includes the assessment of the loan against a “tailored and proprietary” scorecard that analyses the project sponsor and the underlying asset.

“With the traditional lenders’ regulation constraints increasing since the global financial crisis, we see strong opportunities in the CRE debt market to provide financing on a selective basis,” said Nunzio Laurenziello, head of CRE debt funds at Generali Real Estate.

Essentials

UK inventory financier receives government guarantee
British Business Bank has agreed an initial £175 million ($211 million; €195 million) ENABLE guarantee with specialist commercial lending bank, DF Capital.

The guarantee will enable Manchester-based DF Capital to provide up to £225 million of additional inventory finance annually through its commercial floorplan and unit stocking solutions for UK SME dealer and manufacturing businesses.

The ENABLE scheme is a UK government-backed portfolio guarantee to cover a portion of a designated lending portfolio’s net credit losses in excess of an agreed ‘first loss’ threshold – which is received in exchange for a fee.

This is the first time the ENABLE programme has supported inventory finance. A specialist form of lending, it is critical to supply chains, supports the availability of working capital and improves cashflow across product distribution cycles.

DF Capital received its banking licence in September 2020. British Business Bank said the guarantee commitment may be increased to £350 million, which would support additional finance of around £450 million annually.

Fintech lender handed mezz facility
Channel Capital Advisors has closed a mezzanine funding facility with TP24, a Zurich-headquartered fintech lending platform.

Channel is an alternative investment fund manager specialising in fintech, working capital and trade finance investments. Since 2014, the London-headquartered company has deployed more than $9 billion of assets across fintech lending and working capital financing, including trade receivables, inventory and supply chain finance.

The mezzanine funding will enable TP24 to free up equity capital to assist its business growth and drive global expansion plans. TP24 is a data-driven business lender providing working capital facilities to SMEs.

Two new senior execs for A&M
Professional services firm Alvarez & Marsal has expanded its debt advisory practice in Europe with the appointment of Thibaud Parayre as a managing director and Tom Paterson as a senior director in the London office.

Parayre has more than 25 years’ experience in the leveraged finance market and will bolster the debt advisory team’s private credit capabilities, bringing with him a network in the industry across Europe.

Prior to joining A&M, he was a senior managing director at GSO Capital Partners for two years. Before this, he established and led his own capital markets advisory business, Capital Markets Initiative, specialising in the European leveraged buyout market.

Paterson spent 10 years at AlixPartners, where he was head of debt advisory. During this time, he advised corporate and private equity clients on capital markets, leveraged and structured finance, real estate finance, asset-backed lending and special situation refinancing. He has particular experience in the hospitality and leisure sector, including hotels, restaurants and bars.

LP watch

Institution: CPP Investments
Headquarters: Toronto, Canada
AUM: C$529 billion ($192.6 billion; €179 billion)
Allocation to private debt: 14%

CPP Investments acted as lead investor for Harbor Group International’s latest multifamily credit offering, according to a press release from the Norfolk-based real estate investment management firm.

The $1.6 billion final close for the HGI Multifamily Credit Fund is marked by a commitment of $585 million from CPP Investments, continuing a tenured relationship that has seen the Canadian pension back three HGI investment vehicles since 2019.

In 2020, CPP Investments was lead investor in HGI’s multifamily whole loan platform, committing $110 million. In 2019, CPP Investments committed $180 million to HGI’s Freddie Mac Supplemental Loan programme.

The fund seeks to achieve attractive risk-adjusted returns by investing in US multifamily credit opportunities including senior mortgage loans, Freddie Mac K-series bonds, preferred equity and mezzanine debt investments and investments in securitised multifamily mortgage products.

CPP Investments currently allocates 14 percent of its total investment portfolio to private debt, comprising around C$74.1 billion ($55.5 billion; €51 billion) in capital. The pension’s target allocation to the asset class is unknown.

The C$529 billion pension’s recent fund commitments have tended to be made to Asia-Pacific focused vehicles that utilise a senior debt strategy.


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