Loan Note: Kerberos brings ESG loans into litigation finance; Blackstone launches new group

Loans with margin ratchets enter the litigation finance space. Plus: Blackstone launches a new unit and Houlihan Lokey creates a private credit index. Here's today's brief for our valued subscribers only. 

They said it

“It is clear that there is a huge opportunity for additional capital to be allocated by individual investors into the private markets and we are an early entrant in the space”

Steve Brennan, head of private wealth solutions at Hamilton Lane, which has launched two evergreen products aimed at retail investors (see here)

First look

ESG green investing

ESG loans reach into legal sector

Margin ratchets in loan agreements have become a popular way of rewarding firms committed to hitting targets relating to environmental, social and governance issues. Such loans have proliferated in mainstream private debt , and it appears they are now spreading to the speciality finance market.

Chicago-based Kerberos Capital Management has incorporated margin ratchets into the direct loans it makes to law firms, and claims this is “the first debt product of its kind in litigation finance markets”.

To qualify for such loans, firms must demonstrate a material and ongoing commitment to providing pro bono legal services; generate a specified amount of revenue related to ESG-advancing case types; and establish that they do not prosecute cases or conduct business in ways that run counter to ESG principles.

Kerberos will assess key performance indicators relating to these three factors at a loan’s inception and throughout its duration, with margin adjustments ranging from 50 to 100 basis points.

“Litigation financing in general has ESG attributes, because the capital provides increased access to justice,” said Joe Siprut, chief executive and chief investment officer of Kerberos. “But we wanted to go further.”

New group for Blackstone

Blackstone has launched a designated structured finance group. The move reflects how big a role credit has started to play for the $730 billion manager, and the person tapped to run it shows how big a role real estate will play for the new platform. Jonathan Pollack, the current global head of Blackstone Real Estate Debt Strategies, has been promoted to global head of the structured finance group.

The new unit will combine BREDS and the firm’s various asset-backed finance activities. BREDS’ senior managing director, Mike Wiebolt, will manage asset-backed securities in addition to his current responsibility of managing the group’s liquid securities.

In a statement, the firm’s president and chief operating officer Jonathan Gray said: “The time to expand this part of our business has never been better, particularly as we deploy increasing amounts of insurance capital.”

Houlihan Lokey launches private credit index

Global investment bank Houlihan Lokey has launched a performing private credit index, according to a news release.

The index will comprise an aggregate view from the bank’s dataset of private credit loan valuations representing an observation of the all-in yield of 7,000 quarterly asset valuations since 30 September 2017.

“We are excited to launch the first index of its kind to bring transparency to the typically opaque private credit markets,” David Wagner, senior adviser in Houlihan Lokey’s portfolio valuation and fund advisory services practice, said in the release. “As these markets continue to grow in size and significance, transparency is more important than ever, and the PPCI will provide a valuable reference set of quarterly yields that are drawn from our unique view of private credit.”

The Los Angeles-headquartered Houlihan Lokey’s expertise includes mergers and acquisitions, capital markets, financial restructuring and valuation.


Talk about a China crisis

“While all eyes remain peeled and ears perked for the climax, China bulls are questioning and re-evaluating their pursuit of growth in China.” This assertion is taken from a new series of video conversations with fund managers called Intelli-bytes, collated by Emerging Markets Alternatives, a US-based independent investment auditor.

The first conversation is with Ben Fanger, managing partner and founder of China fund manager ShoreVest Partners, about ailing Chinese property developer Evergrande and opportunities for distressed investing in the country. Well worth a read here.

Secondary pricing heads up

The latest secondary market pricing report from Toronto-based advisory firm Setter Capital shows secondary pricing to have risen between September 2020 and September 2021 across every segment of the alternatives markets that the firm covers.

The biggest rises were seen in venture capital (12.35 percent) and infrastructure (10.92 percent). Within the credit markets, price rises were comparatively modest. Mezzanine and distressed debt, for example, saw respective increases of 3.06 percent and 1.99 percent.

New hires for Hayfin 

Hayfin Capital Management has appointed Caoimhe Bain as head of ESG, a new role designed to bolster the firm’s ESG capabilities and coverage. Bain reports to Andrew McCullagh, a member of Hayfin’s management committee, investment committee and ESG committee. She joins from Hymans Robertson where she worked as a responsible investment consultant in charge of the firm’s responsible investment policy and sustainable investment framework.

Hayfin has also expanded its client coverage capabilities in North America through the appointments of Risa Lipsky and Chris Parisi as managing directors within its business development team in New York. Lipsky was previously managing director of business development and investor relations at Atalaya Capital Management. Parisi was most recently managing director and relationship manager within BlackRock‘s financial institutions group.

Helping hand on SFDR 

A new report from the European Leveraged Finance Association and law firm Hogan Lovells aims to help guide credit investors and corporate borrowers through the minefield of disclosure required under the Sustainable Finance Disclosure Regulation. Well worth a read here if you’re affected by SFDR.

LP watch

Institution: Los Angeles County Employees Retirement Association
Headquarters: Pasadena, US
AUM: $71.98 billion
Allocation to alternatives: 26.7%

Los Angeles County Employees Retirement Association has issued a request for proposal for an illiquid credit emerging manager programme separate account manager. The deadline for an intent-to-respond submission is 26 November.

According to the RFP document, the separate account manager would be expected to source, conduct due diligence on, and manage a portfolio of illiquid credit emerging managers. The RFP mandate proposal is for an allocation of approximately $750 million.

LACERA currently has a 7 percent target allocation to illiquid credit. The pension plans to allocate 15 percent of its illiquid credit portfolio to its emerging manager programme.

The pension currently allocates 2.8 percent of its full investment portfolio to illiquid credit. Jonathan Grabel is LACERA’s chief investment officer.

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

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