Loan Note: Large, private companies in favour; LPs boosting alternatives allocations

Private markets and larger companies are preferred in a report from fund manager AlbaCore Capital Group. Plus: the survey that shows investor sentiment towards alternative assets remaining buoyant. Here's today's brief for our valued subscribers only.

They said it

“US inflation figures could set the tone for the rest of the month, let alone the rest of the day when they are released later. A higher-than-expected number could put the markets back in panic mode over rising prices”

Russ Mould, investment director at online investment platform and stockbroker AJ Bell, quoted in The Guardian as key inflation data is set to be announced.

First look

Private and large: the keys to success today
AlbaCore Capital Group was one of a group of fund managers that responded quickly to the turmoil of last year by raising a dislocation fund. Earlier this week, it continued its fundraising exploits with the first closing of its third core fund, as we reported here.

In a market commentary, AlbaCore chief investment officer David Allen explored current market conditions. No doubt echoing the thoughts of many, Allen noted: “There is a period of emotional and psychological relief when markets have endured significant stress, and a sense of normalcy returns.” Here are a few of Allen’s other reflections.

Private over public: As an investor on both the private and public markets, AlbaCore is currently spending most of its time looking at the former over the latter. “Our private pipeline has grown considerably since the beginning of 2021,” said Allen.

Large over small: A year into the pandemic-affected economy, Allen is seeing companies and private equity sponsors shift from offence to defence, leading to a significant volume of dealflow. Much of this dealflow relates to larger companies which, due to their resources and flexibility, “have weathered the crisis more capably than their smaller counterparts”.

The rise of senior secured: Allen points to “very attractive” senior secured credits with a short duration of one to 2.5 years, “which we are happy to underwrite, earn an attractive return on and reinvest in the medium term”.

High bar for junior capital: Allen is seeing LBO-type opportunities, strategic M&A, bolt-on acquisitions and interesting growth capital situations. But the bar for junior exposure “is very high at the moment”.

Investors flock to alternatives
It’s not only AlbaCore finding private markets preferable to public. In a survey of its clients by investment fund syndication firm Connection Capital, the proportion of investors dedicating more than 10 percent of their portfolios to alternative assets rose to 68 percent from 63 percent in 2019.

The main motivation for investors wanting more exposure to alternatives was to avoid being overweight in mainstream quoted equity markets (cited by 77 percent of respondents).

Moreover, the demand for alternatives is tipped to remain strong in the year ahead. Almost a third of investors (30 percent) said they expected to increase their exposure over the next 12 months.

While private equity was the most popular strategy (favoured by 66 percent), distressed and special situations came second on 54 percent.


Wingspire hires trio
Wingspire Capital, a senior secured credit-focused fund manager with offices in Atlanta and New York, has made a number of hires. Towards the end of May, John Olsen joined as a director in the portfolio management team with responsibility for a portfolio of mid-market borrower relationships. He was previously a senior vice-president and portfolio manager at Bank of America Business Capital.

This month, the firm has added two more recruits: Dave Turco as a managing director in the business development team, having previously been business development officer at Context Business Lending; and David Gittleman as head of capital markets, having formerly been senior managing director of Steel City Capital Funding.

A winning formula in Asia? 
If you’re a little rusty on Grinold and Khan’s Fundamental Law of Active Management, fear not. In its latest Private Credit Newsletter, Hong Kong-based fund manager Zerobridge Partners takes FLOAM (normally associated with public market strategies) and applies it to the construction of an Asia-Pacific private credit portfolio. The results are well worth a read.

LP watch

Institution: Illinois Municipal Retirement Fund
Headquarters: Oak Brook, US
AUM: $53.1 billion
Allocation to alternatives: 13.33%

Illinois Municipal Retirement Fund approved $80 million-worth of commitments to two private debt funds at its May 2021 board meeting, a contact at the pension informed Private Debt Investor.

The commitments comprised $40 million apiece to ABRY Senior Equity VI and Sterling Group Credit Fund II.

IMRF had a 0.37 percent allocation to private debt as of 31 March 2021.

The $53.1 billion US pension’s private debt commitments predominantly focus on North American corporate debt funds.

Institution: Santa Barbara County Employees’ Retirement System
Headquarters: Santa Barbara, US
AUM: $3.79 billion
Allocation to alternatives: 25.65%

Santa Barbara County Employees’ Retirement System approved RVK as its general investment consultant at its May 2021 retirement board meeting, a contact at the pension informed PDI.

The pension decided to forego a full request for proposal search process and initiate a contract review and renewal with the investment consultant. The current contract expires this month and the renewal is for an additional five-year term.

SBCERS currently allocates 1.91 percent of its investment portfolio to private debt. The pension’s chief executive officer is Greg Levin.

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

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