Loan Note: Investors shift to broad credit allocations; Azimut takes stake in RoundShield

New research from Rede Partners finds LPs are changing the way they allocate credit investments. Also: Azimut acquires 20 percent of specialist lender RoundShield and Runway hires an ex-Blackrock director. Here's today's brief for our valued subscribers only.

They said it

“The high-yield market is definitely pricing in some level of stress, but it’s pricing in nowhere near recession-type levels”

Citigroup strategist Michael Anderson tells Bloomberg that junk bond markets are not signalling a recession.

First look

New approach: LPs are changing the way they allocate capital to credit markets (Source: Getty)

LPs shift to broader credit allocation model
Investments into private debt funds are increasingly coming from LPs’ broader credit allocations according to research from placement agent Rede Partners.

Following interviews with more than 50 limited partners based in Europe, North America and Asia, Rede found that while broader credit allocations accounted for 35 percent of the capital being allocated to private debt funds, by 2021-22 this reached 66 percent.

A declining number of LPs are committing to private debt funds from their private equity buckets, falling from 24 percent in 2018 to 7 percent today.

Rede said: Discussions with investors highlighted that ‘broader credit’ allocations are typically designed to accommodate a wide range of credit strategies, allowing investment professionals to select those they see as most attractive on a risk adjusted basis.”

When LPs have previously allocated to the asset class from a private equity bucket, the requirements for a higher absolute return often limited the number of strategies they could choose. As more LPs move towards using a broader credit allocation, they will have greater flexibility to back new and innovative credit strategies.

The research also found there remains significant demand for additional allocations to private credit. A huge 82 percent of LPs said they are increasing their allocations to private credit while just 4 percent are looking to decrease allocations.

However, private credit remains a small aspect of the portfolios for most LPs, with 72 percent saying total allocation is less than 5 percent. Nine percent of LPs surveyed, however, have more than 21 percent of their assets under management allocated to the asset class.

Azimut acquires share in real assets lender
Azimut Alternative Capital Partners has acquired a minority interest in special situations manager RoundShield, its fifth deal in the private markets space and first in real assets.

RoundShield invests in European asset-backed special opportunities, including real estate, infrastructure and other hard and financial assets.

The deal sees Azimut acquiring a 20 percent equity interest in RoundShield and contributing permanent capital to the business going forward. After-tax proceeds of the deal will be used to invest in its firm-sponsored funds and bolster its commitment to align itself with investors. The strategy, management and investment process and operations of the firm will remain unchanged.

RoundShield has exited a total of 128 assets and fully realised 16 debt facilities with a weighted average gross IRR of 23 percent and a multiple of 1.6 percent.

AACP was established in November 2019 by Azimut Group to partner with private-markets focused alternatives managers and provide them with permanent capital to grow their business. So far, it has also invested in Kennedy Lewis, HighPost Capital, Pathlight capital and BroadLight Capital.

Jeff Brown, CEO of AACP, said: “We believe RoundShield stands unique as a UK-based special opportunities firm in its proven ability to identify and capture compelling investments across the UK and Europe, thanks in part to its unparalleled sourcing network. In addition, we believe that RoundShield’s all-weather strategy, which is designed to perform even in periods of market dislocation, can be particularly helpful to investors seeking uncorrelated returns in the current high-volatility environment.”


Runway Growth Capital hires MD for technology
Runway Growth Capital said it hired Brad Pritchard as managing director, technology. Pritchard, who will work out of the Silicon Valley office of the provider of growth loans to both venture and non-venture backed companies, will report directly to Runway’s founder, David Spreng.

Pritchard, who was a managing director at BlackRock for more than eight years, and led its venture lending efforts globally, also will target top venture capital firms and the management teams of leading late-stage technology companies.

Spreng said that Pritchard’s network and industry knowledge will bolster new and existing relationships at Runway, help keep it top of mind with companies seeking the flexible financing that venture debt offers and significantly deepen its bench strength in technology origination.

Pritchard has more than 20 years’ experience helping companies raise debt and equity as an investor and investment banker. Before BlackRock, Pritchard was a managing director at Hercules Capital, a venture lending BDC.

New CLO raised by CVC
Despite what it described as “challenging market conditions”, CVC Credit has closed its Cordatus XXIV collateralised loan obligation fund on €355 million, representing a €30 million upsizing after strong demand from new and existing investors.

The fund, which was arranged by Goldman Sachs, is the fourth new CLO vehicle closed by CVC this year. In total, the four funds have raised nearly €1.8 billion. As with the previous funds, Cordatus XXIV will be mainly comprised of broadly syndicated first lien senior secured loans.

“Pricing a CLO in such an environment positions us well to buy assets at attractive levels over the coming weeks,” said Guillaume Tarneaud, partner and head of European performing credit at CVC Credit.

LP watch

Institution: Maine Public Employees Retirement System Headquarters: Augusta, USAUM: $18.8 billionAllocation to alternatives: 40.8%

Maine Public Employees Retirement System approved a $125 million commitment to AG Direct Lending Fund V, a contact at the pension informed Private Debt InvestorThe commitment is subject to final due diligence by the pension fund.

The vehicle, managed by Angelo Gordon, will invest in North American companies and seek senior debt returns.

The US public pension’s recent fund commitments have predominantly targeted North American vehicles focused on a variety of sectors.

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