Loan Note: Future Fund’s diversity push; KKR on what 2021 has in store

The UK's Future Fund outlines how its loans have been distributed. Plus, KKR tells us what to look out for next year and BNP Paribas launches two new infrastructure debt funds. Here's today's brief for our valued subscribers only. 

He said it

“With a rapid and robust recovery expected in 2021, we prefer to start the year with a moderate overweight to global equities. Prices should be supported by the very strong outlook for corporate earnings growth in 2021.”

Michael Grady, head of investment strategy and chief economist at Aviva Investors, in the firm’s House View: 2021 Outlook (pdf download).

First look

Onwards and hopefully upwards

First and foremost, we would like to wish our readers an enjoyable and restful holiday period at the end of what may be politely termed a challenging year. Loan Note will return on Monday 4 January 2021.

Do please visit our website from time to time as we will be providing fresh content over the holidays, much of it reflecting on the year gone by and predicting what may be around the corner. Plus, do remember to vote in our annual awards ahead of the deadline on Friday 8 January.

Where the Future Fund’s money went

The Future Fund, one of the financing tools with which the UK government sought to help companies affected by covid-19, has released details of the £976 million ($1,307 million; €1,070 million) of convertible loan agreements struck with 971 companies in 2020.

More than three-quarters of the funding (78 percent) went to companies with mixed-gender senior management teams. The fund, which is a signatory to the Investing in Women Code, also revealed that it will supply HM Treasury with statistics on founder gender. HM Treasury is publishing its first annual Investing in Women Code Report in the first quarter of next year.

The Future Fund also reported that Black, Asian and minority ethnic-only and mixed ethnicity management teams account for 63 percent of companies approved for convertible loan agreements so far, worth more than £570 million.

KKR: what to be bullish on in 2021

“The punch line for the next 12-24 months is that the growth environment is going to feel quite good,” writes KKR’s Henry McVey in his latest macro report. More stimulus and a snapback in consumer spending will all likely be in play. McVey identifies six themes for 2021:

Rise of the global millennial: The cohort born from 1980-94 are now becoming a global spending force. “We now look for these individuals to reshape many traditional consumer markets, particularly as it relates to financial services, healthcare and technology.”

A renaissance in big government (with ESG benefits): “As part of the trend towards higher fiscal outlays, we think that almost all aspects of ESG are winners, including water cleanliness, energy transition (solar, wind and other renewables), climate and resiliency (eg, grid). Also, watch for an increased focus on telelearning, telemedicine and workforce training.”

Asset-based cashflow enters a super cycle: Now is the time to overweight positions in asset-based finance credit, infrastructure, logistics and parts of real estate. “As we look ahead, we have high conviction that we are still in the early innings of a structural upward re-rating in collateral-based assets that can generate a competitive upfront yield without too much leverage.”

Local bias preference: Local technology and services champions could be an even more fertile area for investment. “We believe that rising nationalistic sentiment combined with a post-covid focus on redundant, reliable and resilient supply chains for critical products will lead to more local bias in terms of both consumption and production (ie, expect global capex to surprise on the upside), which has important implications for global supply chains, global trade and capital flows.”

Embracing dislocation: Volatility will continue into 2021. “This backdrop makes us bullish, as it presents global allocators of capital with opportunities to take advantage of dislocations and dispersion.”

Secular vs cyclical: Yes, while KKR is positioning its portfolio for a more cyclical 2021, secular trends will retain their relevance. “Indeed, given all the seismic changes that have taken place in healthcare, security, software and consumerism, we still want to be long disruptors.”


New launches for BNP Paribas

BNP Paribas Asset Management has launched two infrastructure debt funds. BNP Paribas European Infrastructure Debt Fund II will target €500 million and will have a strong focus on senior debt in the digital infrastructure and renewable energy sectors. It follows the first fund in the series, which raised €474 million and launched in late 2017.

The firm is also launching a first junior debt-focused fund. BNP Paribas European Junior Infrastructure Debt Fund I has a target of between €300 million and €500 million and will target European non-investment grade infrastructure debt offering stable and predictable cashflows.

Acofi writes impact loan in France 

Acofi Gestion has completed what is claimed to be the first real estate impact loan underwritten by a non-bank lender in France. The €30 million loan is secured against a pan-European logistics platform owned by Valor Real Estate Partners and contains environmental criteria linking improvements made to the assets to step downs in margin.

LP watch

Institution: Arkansas Teacher Retirement System
Headquarters: Little Rock, US
AUM: $16.7 billion
Allocation to alternatives: 32.3%

Arkansas Teacher Retirement System has agreed to commit $40 million to Mesa West Real Estate Income Fund V, a contact at the pension informed Private Debt Investor.

The $1 billion fund is targeting a levered 8-10 percent internal rate of return over an eight-year term. The fund also targets traditional real estate investments including office, apartment, retail and industrial opportunities.

The pension fund’s recent commitments are to vehicles focused on the retail, industrial, hospitality, office and residential sectors within the North America region.

Institution: School Employees’ Retirement System of Ohio
Headquarters: Columbus, US
AUM: $15.3 billion
Allocation to alternatives: 27.1%

School Employees’ Retirement System of Ohio has agreed to commit $50 million to GoldenTree Structured Products Fund VII, a contact at the pension informed PDI.

The pension fund’s recent commitments are to vehicles focused on the corporate sectors within the Asia-Pacific, Europe, Middle East/Africa and North America regions.

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

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