Loan Note: LPs gravitate to niche strategies; dislocation capital continues to flow

Investors are flocking to private markets but have mixed feelings on private debt. Plus, new LPs pile into dislocation with Varde Partners; and Blackstone decides to move on with a credit rebranding. Here's today's brief for our valued subscribers only.

He said it

“Positive vaccine news from Pfizer takes us one step closer to FDA approval, which will allow for markets to become more comfortable with the growth recovery story. Any near-term blips will now be seen as temporary in nature.”

Mohammed Kazmi, portfolio manager for the absolute fixed income team at Union Bancaire Privée, the private bank and wealth management firm.

First look

Investors want niche strategies
Some of the highlights from the latest Manager Intelligence and Market Trends survey from consultants Bfinance:

  1. Investor interest in private markets continues to grow. In the year to 30 September 2020, Bfinance saw a 34 percent increase in private markets manager selection engagements (both new searches and re-ups of existing managers).
  2. In the third quarter of this year, infrastructure and private equity were continuing to see growth in such engagements, while private debt and real estate were seeing a decrease. However, while mainstream private debt strategies were experiencing less interest, there was a surge of new engagements in niche areas such as trade finance and equipment leasing.
  3. Amid the pressures of the health crisis, investors are seeking what Bfinance describes as “resilient yield” in private markets. Hence, there is interest in asset-backed credit such as real estate debt and infrastructure debt.
  4. Bfinance found private debt capital raising in Q3 to be at its lowest level for at least eight years, with there only being appetite for US-focused funds.

For our latest interactive fundraising report, click here.

Varde doubles up for dislocation
The dislocation investing trend, which we dived into in a cover story earlier in the year, continues apace. Minneapolis-headquartered Varde Partners, which had already closed a $1 billion dislocation vehicle through a private banking platform, has now wrapped up its Varde Dislocation Fund on more than $1.6 billion.

In keeping with the times, the latest fund was raised with no in-person meetings. All the more impressive, then, that no fewer than 55 percent of the capital was accounted for by new investors. It was also pretty fast, taking just five months from start to finish.

And then there were none 
Following our story last week that Bennett Goodman was part of a new founding team at GP stakes business Hunter Point Capital, Blackstone has decided to rebrand GSO Capital Partners as Blackstone Credit (see here).

It can hardly be argued that this doesn’t make sense, as all three co-founders (“G” for Goodman, “S” for Tripp Smith and “O” for Doug Ostrover) have now left the business.

Data snapshot

LPs have broad horizons. Our latest fundraising report shows multi-regional funds in favour with investors, accounting for almost 40 percent of all private debt capital raised in the first three quarters of this year. Having fallen behind European funds earlier in the year, North American funds have resumed their traditional dominance.

Essentials

Awards deadline looms
A reminder that the deadline for submitting highlights for our 2020 awards is close of business tomorrow. Be sure not to miss out on your chance to win in any one or more of 48 categories. See here for details.

New president for Apollo aviation unit
PK AirFinance, the aviation lending business managed by affiliates of Apollo Global Management, has named Eelco van de Stadt as its president, effective January 2021. The appointment follows former president Per Waldelof’s decision to retire at the end of the year.

Van de Stadt will be based in London. He joins PK AirFinance from MUFG, where he served as global head of origination aviation finance for nearly a year following MUFG’s acquisition of DVB Bank’s aviation finance client lending portfolio. Previously, van de Stadt was the global head of aviation for DVB Bank, where he spent approximately 18 years.

LP watch

Institution: Florida Retirement System Trust Fund
Headquarters: Tallahassee, US
AUM: $207.8 billion
Allocation to alternatives: 27.1%

Florida Retirement System Trust Fund has confirmed $1.2 billion-worth of private debt commitments to six vehicles, a contact at the pension informed Private Debt Investor.

The commitments comprise $150 million to Orion Energy Credit Opportunities Fund III, $200 million to Apollo Accord Fund IV, $200 million to Audax Mezzanine Fund V, $200 million to MSD Private Credit Opportunity Fund SMA, $200 million to OHA Tactical Investment Fund and $250 million to Torchlight Debt Opportunity Fund VII.

The pension fund’s recent commitments are to vehicles focused on the corporate and real estate sectors within the North America region.

Institution: Teachers’ Retirement System of the State of Illinois
Headquarters: Springfield, US
AUM: $52.92 billion
Allocation to alternatives: 31.0%

Teachers’ Retirement System of the State of Illinois has committed to a fund from Oaktree Capital Management, according to information on its website.

The pension has pledged up to $100 million to Oaktree Real Estate Debt Fund III, which focuses on real estate in North America.

Illinois TRS primarily invests in funds that focus on distressed, senior and subordinated debt in Europe and North America.


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

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