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Loan Note: Fund manager identifies credit weaknesses; Carlyle buys net lease business

Fund manager spots "more pronounced signs of credit weakness" in certain industries. Plus: Carlyle buys net lease business and AXA IM Alts makes a key hire in Asia-Pacific. Here's today's brief for our valued subscribers only.

They said it

“It’s our experience that many investors now believe that we could hit peak inflation by the end of this quarter”

Nigel Green, chief executive officer of deVere Group, the UK-based independent financial adviser.

First look

Report sees covid effects emerging
The volatility brought about by covid is increasingly being seen in the credit markets, according to a new study from fund manager Varde Partners.

The firm’s latest Varde Views credit market update points to various manifestations of this volatility, including:

1. Many credits in sectors directly affected by covid are now seeing significantly wider spreads than their pre-pandemic levels.

2. There are “more pronounced signs” of credit weakness in several industries, especially retail-focused sectors, as a result of workforce disruption and rising input costs.

3. In emerging markets there is opportunity in sovereign debt, including from the impacts of covid and bad policy, which has led to a steep sell-off.

4. In commercial real estate lending an opportunity has arisen in hotels and parts of the office market as a result of banks tightening underwriting standards due to prolonged uncertainty and some non-bank lenders being hampered from new lending by the need to triage their back books.

5. The impact on consumer and small and medium-sized business balance sheets has created opportunities across the speciality finance landscape.

Carlyle makes moves in net lease, private wealth
Two big announcements from Carlyle Group yesterday. First, the firm unveiled a major move into real estate credit with the $3 billion acquisition of a net lease business from New York Stock Exchange-listed iStar. Equity for the deal came from a combination of Carlyle’s global credit platform and a minority balance sheet investment from Carlyle.

The deal gives Carlyle a portfolio of triple net leases spanning industrial, office and entertainment properties across more than 18 million square feet located throughout the US. In addition, the team overseeing the portfolio – including Barclay Jones, who has led iStar’s net lease strategy for 20 years, and senior vice-president Catherine Tenney – have joined Carlyle’s real estate credit team.

Mark Jenkins, head of global credit at Carlyle, said he expected the net lease business to grow to $10 billion. Overall, the firm’s global credit platform had $66 billion in assets under management in the third quarter of 2021, more than doubling its size in less than four years.

Also yesterday, Carlyle expanded its wealth management channel through a partnership with iCapital, a global fintech platform, and Allfunds, a business-to-business wealthtech platform. Via iCapital’s platform, Allfunds clients will be able to access Carlyle’s private market investment opportunities.

“Individual investors are increasingly seeking ways to invest in private markets and we are pleased to partner with iCapital and Allfunds to make Carlyle funds available to them,” said Paul Ferraro, global head of Carlyle private wealth.

Essentials

Asia hire for AXA IM Alts
Paris-based AXA IM Alts has appointed Sandra Lee to the newly created role of head of client group alts Asia as part of the business’s growth ambitions in the region and its aim to expand and service its Asian client base.

Lee, who has more than two decades’ experience in investor relations, business development and fundraising in Asian markets, will be based in Hong Kong and responsible for raising new capital in the region. She will report directly to Florence Dard, global head of client group alts, and will work with the rest of client group alts to build and maintain long-term client relationships across key global markets.

With more than 35 clients in the region and 25 percent of the total capital raised by AXA IM Alts in 2021 coming from APAC, the region is seen as a key area of growth for AXA IM Alts across private debt, alternative credit, real estate and infrastructure.

Octopus teams with Bayview
Octopus Real Estate, the UK real estate lender and investor, has agreed a funding partnership with affiliates of Bayview Asset Management, an investment firm focused on investments in mortgage and consumer credit, to provide two-to-five-year senior investment debt to the UK commercial real estate market. The partnership has an initial commitment of £450 million ($612 million; €542 million).

Octopus believes it has identified an undersupply of loans in the smaller commercial investment debt market, with funding targeting loan opportunities up to £25 million. With more than £5 billion of lending to UK assets made to date across commercial, residential and development, the partnership will complement Octopus’ existing range of debt products.

BBI backs UK property financier
British Business Investments has committed £15 million to Roma Finance, a Northwest England-based lender which specialises in property finance. The investment is designed to help increase access to finance for smaller scale housing developers.

British Business Investments, a wholly owned commercial subsidiary of the British Business Bank, aims to increase the supply and diversity of finance for smaller businesses across the UK, by boosting the lending capacity of a range of finance providers. Since it was established in 2014, it has committed more than £3 billion to providers of finance to UK smaller businesses.

LP watch

Institution: Chicago Policemen’s Annuity & Benefits Fund
Headquarters: Chicago, US
AUM: $3.01 billion
Allocation to alternatives: 12.03%

Chicago Policemen’s Annuity & Benefits Fund has approved $40 million in commitments across two private debt vehicles, according to recently released materials from an October 2021 investment committee meeting.

The public pension has made commitments of $20 million each to Brightwood Fund V and Lynstone Special Situations Fund II. As has been commonplace for any CPABF investment, these funds were chosen from a four-fund shortlist which derived from an earlier RFP issued by the pension.

CPABF currently allocates $71.54 million to private debt investments, comprising 2.38 percent of its total investment portfolio. The public pension has a target allocation to private debt of 4 percent.

CPABF’s recent private debt commitments have focused on distressed and senior debt vehicles that invest in North America and Western Europe.


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