Loan Note: Highlights from a decade of fundraising; US pensions’ inflation view

We find two distinct phases as we look back over 10 years of private debt fundraising. Plus: US pensions' inflation fears ease; and a new CIO for Connection Capital. Here's today's brief for our valued subscribers only. 

They said it

“Across their portfolios, LPs are recording record levels of returns, with two-fifths of LPs reporting net annual returns of over 16 percent across the lifetime of their private equity portfolios ” 

Taken from the latest Coller Capital Global Private Equity Barometer

First look

Fundraising’s tale of two halves
Since Private Debt Investor launched a decade ago – the basis for our Decade issue, released this month – we have closely tracked fundraising for the asset class across its evolving array of strategies. We have witnessed the meteoric rise of an asset class considered a small, niche proposition in the 2000s into a major offering that has attracted many of the biggest private markets firms and institutional investors in the world.

The past decade of private debt fundraising shows an industry reaching maturity. Fundraising has proven to be resilient through several years of difficult macroeconomic conditions, the number of active managers in the asset class appears to have settled and big brand names have become established. The future also looks bright. With other sources of financing, such as banks, continuing to suffer from volatile market cycles, the business world will continue to look to alternative lenders for stability.

In 2012, closed-end private debt funds secured just $101.6 billion of capital from LPs. This rapidly increased to reach $279.5 billion in 2017, often seen as a landmark year for the asset class. This was driven primarily by a large proliferation of new fund managers, and the number of funds closed increased every year between 2013, when 289 vehicles closed, to 480 fund closes by 2019.

But the second half of the decade has been different. The amount of capital raised has become choppier, dipping to $205.1 billion in 2020 as the covid-19 pandemic disrupted the fundraising process for many managers, and reaching a new peak the following year with €289.4 billion raised. The number of fund closes also began to decline sharply after 2019. Just 257 funds closed in 2022, down by almost 50 percent from its peak.

The 10 largest fundraisers of the past 10 years have raised more than $600 billion between them.

Three funds raised have breached the $10 billion mark, with the other top fund closes each raising more than €5 billion. Among the top names in private debt, many were already familiar names in the private equity world, but there are also firms that have carved a name for themselves by focusing on the debt space.

Public pensions: less fear but no complacency over inflation
A new report from Ortec Finance says US public sector pension plans are anticipating a number of economic and market shocks, but that there has been an easing of inflation fears.

Marnix Engels, Ortec managing director, pension strategy, said: “The degree of uncertainty is extremely high for US public sector pension plan sponsors but there is genuine optimism that lower inflation will become well-established, with very few managers expecting it to be as high as it currently is within a year or two.”

The US inflation rate peaked at 9 percent in mid-2022. The most recent available figure is just above half that, 4.9 percent. More than half of the managers questioned (52 percent) believe that inflation could be at 3.3 percent or lower within the year. Only 10 percent believe it will be over 6 percent by then.

The waning of fear has not meant complacency. Two out of three managers surveyed say they will be increasing allocations to commodities to help hedge continuing inflation risks. Nearly one in three (32 percent) will increase allocations to inflation-linked bonds and 38 percent will increase allocations to gold.

Ortec Finance contracted with independent research concern PureProfile, which surveyed 50 US plan managers. The group collectively manages more than $1.315 trillion in public pension fund assets. It found increasing emphasis on scenario modelling and stress testing, given a general recognition that inflation and high interest rates following the covid pandemic have put their funded ratios under strain.

Next stops: Japan and Korea
A heads-up that our Private Debt Investor events calendar, which has already encompassed Singapore and London so far this year, takes us to Seoul and Tokyo between 26-29 June for Japan Korea Week.

The fifth iteration of our annual visit to two of Asia’s most important investor hubs has already attracted more than 300 Japanese and Korean institutions and global private debt leaders.

Among the keynote speakers at the event are Tadasu Matsuo, managing director and head of global alternative investments at Japan Science and Technology Agency; Andrew Lockhart, managing partner at Metrics Credit Partners; and Todd Leland, president of Goldman Sachs International.

If you haven’t already, make sure to book your place now!


PE veteran Mowlem joins Connection
Connection Capital, the UK-based private client alternative investment business, has appointed Michael Mowlem as chief investment officer to head up its direct private equity and wider alternative investments offering against what it says is a backdrop of increasing demand by private investors.

Mowlem has worked in the private equity industry for more than 25 years and was previously chief executive officer and managing director of LGV Capital, the mid-market private equity investment arm of Legal & General Group.

Other roles included head of private equity at Sandaire, the multi-family office wealth management business, and more recently as a direct equity consultant to Aviva Capital Partners. He began his career in M&A with Hambros Bank, spending nine years there.

In his new role, Mowlem will be responsible for setting and overseeing product strategy across the firm’s direct investment, co-investment and alternative funds product lines.

Connection Capital is a syndicator of investment funds from private professional investors into direct private equity, private debt and commercial property deals, as well as alternative asset funds. It currently has £480 million ($604 million; €561 million) under management.

IW wraps up UK SME loan fund
London-based IW Capital, a private equity investor in UK SMEs, announced the full realisation of its IW Capital Secured Debt Company No 1 LP fund, which provided secured loans to established UK-registered SMEs.

IW Capital launched the fund in August 2018, providing its private investor network with the opportunity to subscribe to a portfolio of secured loans to UK businesses. The fund provided loans on three- to five-year terms to a number of UK businesses across diverse sectors. These included manufacturing, distribution, technology and hospitality. The loans were used to support the growth of the businesses or provide acquisition funding for MBOs and MBIs.

IW said all the loans to the borrowing companies were fully serviced throughout the life of the fund, with no bad debts. In addition to running yield, some of the loans provided a premium on redemption that enhanced returns to investors in the fund.

Papp new chairman of Asian loan body
Tibor Papp has been appointed the new chairman of the Asia Pacific Loan Market Association, the industry body for syndicated loan professionals in the Asia Pacific region. He is head of syndicated finance for Asia Pacific at ING Bank, a position he has held for more than 15 years.

“It is an honour to be elected as the chairman of APLMA at this pivotal time for the loan market in Asia Pacific. With the pandemic behind us, Asia’s loan markets will be instrumental in supporting the region’s economic recovery as an engine of global growth. At the same time, slowing growth, geopolitics and high interest rates present a challenging external environment for all market participants,” said Papp.

“Tibor is a longstanding member of APLMA and a respected practitioner in the Asian loan market, and I am delighted to welcome him as our new chairman in our 25th anniversary year,” said Andrew Ferguson, chief executive officer of APLMA.

APLMA has supported the development of the APAC syndicated loan market from a size of $18.6 billion in 1998 to more than $600 billion in 2022. It aims to foster collaboration and promote best practices across the syndicated loan market through events, training courses and legal documentation.

LP watch

Institution: Maine Public Employees Retirement System
Headquarters: Augusta, US
AUM: $18.43 billion
Allocation to alternatives: 50.1%

Maine Public Employees Retirement System has confirmed up to $140 million in commitments across two private credit vehicles, according to materials from its recent board of trustees meeting.

The bulk of the capital is slated for Ares Senior Direct Lending Fund III, the latest instalment of Ares Management’s senior debt-focused fund series. As reported by Private Debt Investor, Ares is seeking a $10 billion final close for the fund. With a $100 million commitment, MainePERS joins Merced County Employees Retirement Association and The Teachers’ Retirement System of Louisiana as early LPs in the fund.

It is the second commitment MainePERS has made to an Ares private credit fund in 2023, with €75 million having gone to Ares Capital Europe VI in February 2023. MainePERS has been a long-term investor into funds managed by Ares Management, having committed to Ares Capital Europe V in September 2020 and Ares Capital Europe IV in April 2018.

The remaining $40 million has been committed to Sprott Private Resource Streaming & Royalty Annex, a sidecar of the Sprott Private Resource Streaming & Royalty Fund that held a final close in January 2022, having raised a little over $700 million in investor capital.

The $18.4 billion US public pension has a private debt target allocation of 10 percent, which currently sits at 8.6 percent. As of April 2023, its private debt portfolio was valued at $1.59 billion. The pension has predominantly targeted corporate vehicles seeking senior debt returns.

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