Loan Note: Investor appetite holds up in pandemic; Denham and Aflac back sustainability

Investor appetite for private debt is holding up, despite some concern about distressed funds. Plus: Denham teams with Aflac for a sustainability investment platform and Pemberton makes a senior hire in the US. Here's today's brief for our valued subscribers only.

They said it

“The next several years will present a compelling opportunity to partner with non-sponsor-owned companies in need of private debt solutions.”

Stuart AronsonHIG WhiteHorse‘s head of US direct lending, following the closing of the firm’s latest $1.65 billion fund (see here).

First look

LP appetite still growing for private debt 
“Investor appetite for private credit remains undiminished, despite stiff competition from other strategies in the alternatives space,” says Tom Kehoe, global head of research and communications at the Alternative Investment Management Association, reflecting on the organisation’s Investor Intentions H2 2021 survey.

Based on the views of 108 alternatives investors, some of the key findings are as follows:

  • More than a third of limited partners (37 percent) plan to commit further capital to private credit in H2 2021.
  • Over 80 percent of investors are satisfied with how their private credit portfolio performed during H1.
  • Nearly half (47 percent) of those LPs increasing their private credit allocation in H2 will explore co-investments.
  • Two-thirds of institutions are investing further in private credit to reach their target allocations.
  • Investors plan to meet in person with an average of two new private credit GPs in H2.

While the survey presents an overwhelmingly positive view, it did find that satisfaction with the asset class had fallen slightly (albeit to a still very high level of 84 percent). This fall was attributed to “mild concern over some of the newly raised distressed funds”.

Aflac’s $2bn backing for sustainability platform
A new partnership between Aflac Global Investments and Denham Capital brings together two of today’s hot topics – infrastructure debt and sustainability.

The arrangement sees Aflac commit $2 billion to the launch of a new debt platform within Denham Sustainable Infrastructure, plus an additional $100 million to DSI’s next equity fund. Aflac also takes a 24.9 percent equity interest in DSI.

DSI says all its investments are assessed against a screening and ESG scoring methodology, “ensuring investments support climate change mitigation, natural resource conservation, pollution prevention and control, and digital connectivity”.

Data snapshot

H1 fundraising holds up. Fundraising activity was down in the first half of 2021 compared to 2020, but only just. Given the difficulties of raising funds during the pandemic, which prevented fund managers and LPs from meeting, the pandemic’s effect on overall fundraising this year may be less than expected.


Pemberton hires MD for North America

London-based private credit manager Pemberton has hired Sanford Ewing as managing director for North America as part of its business development team.

Ewing is joining Pemberton to support the firm’s international expansion in private debt and will be responsible for investor coverage, client servicing and consultant relations in the North American market.

He was formerly at Cross Ocean Partners, a credit and aviation asset manager, as co-head of marketing and investor relations, and prior to that with Chapdelaine Credit Partners, a diversified credit broker-dealer.

KKR notes ‘risks’ in credit
Global investment firm KKR believes there may be storm clouds brewing in the credit industry.

“If there is a potential Achilles’ heel of this market,” KKR writes in its new 2021 mid-year macro outlook report, “we think it is that credit conditions could deteriorate unexpectedly.”

The firm believes that even with money supply growing faster than GDP growth, it is happening at a time when there is small availability of income/yield for savers. The implied default rate on high yield is down to 1.7 percent, which as KKR points out is “more than one standard deviation below its long-term average”.

KKR notes though that “earnings will likely remain robust well into 2022”.

Kinetic teams with StepStone in student sector 
Kinetic Capital, a specialist lender in the purpose-built student accommodation sector, has launched an investment programme with StepStone Real Estate – part of StepStone Group – to provide capital targeting at least £200 million (€233 million; $275 million) of PBSA loans across the UK and Ireland.

The programme marks Kinetic’s first capital raise since launching its fund last year with a £100 million initial commitment. The programme will focus on providing financing solutions to PBSA owners, developers and operators across key higher-education markets in the UK and Ireland, covering a range of deal sizes and loan types.

LP watch

Institution: Connecticut Retirement Plans and Trust Funds
Headquarters: Hartford, US
AUM: $43.7 billion
Allocation to alternatives: 20.5%

Connecticut Retirement Plans and Trust Funds confirmed $327 million-worth of commitments to private debt funds at its July 2021 investment advisory council meeting, a contact at the pension informed Private Debt Investor.

The commitments comprised €150 million to ICG Europe Fund VIII, $150 million to Strategic Value Special Situations Fund V and $125 million to BIG Real Estate Fund II.

ICG‘s eighth series European debt fund is in market targeting €7 billion from investors, with SVP‘s fifth special situations vehicle having raised $4.4 billion across a number of interim closes, surpassing its initial $4 billion equity capital target. BIG‘s second real estate debt fund raised over 70 percent of its $550 million target via its first close in June 2021.

Connecticut has a 5 percent target allocation to private debt which stood at 0.8 percent as of 31 May 2021. The pension’s private debt portfolio has a market value of just under $350 million.

The $43.7 billion US pension’s recent private debt commitments have targeted vehicles with strategies varying from senior or subordinated lending to those focused on acquiring distressed debt.

Today’s letter was prepared by Andy Thomson with John BakieRobin Blumenthal and Michael Haley.

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