Loan Note: KKR backs a multi-asset credit approach; New Mexico LP opts against Vista commitment

KKR admits making the right calls in today's environment is not easy – and there's no crystal ball. Plus, New Mexico LP withdraws Vista commitment and key takeaways from our Tokyo Forum. Here's today's brief for our valued subscribers only.

He said it

“The strong demand for this strategy from a diverse, global investor base underscores expectations for a deep credit cycle.”

Jon Fox, president of Värde Partners, as the firm wraps up a new $1.6 billion dislocation fund, which was raised in just five months and saw 55 percent of commitments come from new investors.

First look

KKR going large amid uncertainty
In the latest version of its newsletter, The Odyssey, KKR reveals it has invested more than $40 billion globally so far this year.

Multi-asset credit is an approach that should be considered by investors, according to the author of the letter, Chris Sheldon, KKR partner and head of leveraged credit. He says this approach “enables a curated portfolio of credit selection layered across a blend of credit products truly affording the opportunity to be agile and more flexible in future dislocations”.

Indeed, dislocation is a major focus for KKR, having raised a $4 billion dislocation fund in just eight weeks earlier this year. Sheldon says the firm would continue to seek out “idiosyncratic opportunities”.

However, he also admits the current environment is not one where making the right calls is easy given the uncertainty. “As much as we would like a crystal ball at this point, we still haven’t managed to invent one and for that we sit in the same boat as the rest of the world – adapting with each day.”

Vista LP backs out
The New Mexico Educational Retirement Board has decided not to follow through with a $100 million commitment to Vista Equity Partners’ third credit fund, according to a report by Business Insider that was subsequently confirmed by sister title Buyouts.

News of the decision follows Vista founder Robert Smith’s admission in October that he evaded millions of dollars in federal income taxes. Bob Jacksha, New Mexico ERB’s chief investment officer, told Business Insider “we elected not to close on the investment”, but declined to comment on the reason.

The word from Tokyo
Optimism overall, but also a sense that discipline over terms and conditions may be slipping again and that the distressed opportunity may have been over-estimated. These were some of the takeaways from our virtual PDI Tokyo Forum last week. Good news for local investors in attendance though, as Asia-Pacific was cited as having great potential. Read here for our summary of the event.

Data snapshot

Distressed downer. Fundraising for distressed debt funds has fallen sharply in 2020 despite market dislocation caused by coronavirus. However, 2017 and 2019 were bumper fundraising years for the strategy meaning many managers have firepower to deploy, while new funds specifically targeting covid opportunities could see renewed interest in distress into 2021.


Bridgepoint moves into CLOs 
Bridgepoint Credit has announced the pricing of its debut European collateralised loan obligation fund, the €302 million Bridgepoint CLO 1 DAC. The CLO includes ESG eligibility criteria that contain restrictions on which industries it will invest in. Bridgepoint Credit is the debt arm of private equity firm Bridgepoint, owner of Private Debt Investor’s parent company PEI Media.

In late October, Bridgepoint acquired EQT Credit, giving it more than €7 billion of credit assets under management and a wider range of strategies in Europe and the US.

Investors keen to get real 
Global institutional investors are set to prioritise investments into real assets over the next 12 months, according to the latest edition of Aviva Investors’ Real Assets Study

Insurers highlighted a desire to increase their exposure to debt strategies with infrastructure debt (48 percent), real estate debt (46 percent) and private corporate debt (46 percent) all expected to see increased investment. Pension funds were only slightly behind in their enthusiasm for these areas of investment.

LP watch

Institution: Los Angeles Water & Power Employees Retirement Plan
Headquarters: Los Angeles, US
AUM: $14.25 billion
Allocation to alternatives: 11.0%

Los Angeles Water & Power Employees Retirement Plan has approved a $60 million commitment to Cerberus Institutional Real Estate Partners V, according to a document from the pension’s latest board meeting.

LADWP has a strong appetite for distressed and senior debt funds that target investments in properties throughout North America and Europe.

Institution: Oklahoma Police Pension and Retirement System
Headquarters: Oklahoma City, US
AUM: $2.71 billion
Allocation to alternatives: 22.9%

Oklahoma Police Pension and Retirement System has agreed to commit $59 million across two private debt vehicles, a contact at the pension informed PDI.

The commitments comprise $40 million to Starwood Distressed Opportunity Fund XII and $19 million to Apollo Accord Fund IV.

The pension allocates 1.95 percent of its full investment portfolio to private debt. Recent private debt commitments have been mainly to distressed debt vehicles focused on investments in the corporate sector.

Today’s letter was prepared by Andy Thomson with John BakieRobin Blumenthal and Adalla Kim.

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