Loan Note: Nick Brooks of ICG on inflation threat; Tikehau’s take on the pandemic

Nick Brooks of ICG on the dangers of talking ourselves into an inflationary environment. Plus: Tikehau reflects on what made private debt resilient through the pandemic and PwC Luxembourg begins compiling ESG fund data. Here's today's brief for our valued subscribers only.

They said it

“Our focus now is to build a solid track record and cement our existing relationship with these LPs for subsequent funds to come.”

Eddie Ong, deputy chief investment officer and head of private investments at Singapore-based fund manager SeaTown Holdings, a subsidary of Temasek, which has just raised its first third-party capital for its latest credit fund (see here).

First Look

Inflation: could fear become reality?  
With an economy that appears to be booming in many ways, consumer confidence in the US is reported to be at its lowest level for a decade. While this appears contradictory, the main reason for concern is inflation which, in the US, is currently at its highest level since the early 1990s.

This trend, of course, is not confined to the US. It is a global phenomenon and could have profound implications for markets everywhere. In a video we published this weekIntermediate Capital Group economic expert Nick Brooks shared his thoughts on what lies ahead. Although he believes inflation is likely to be transitory in nature, he also thinks the expectation of it could make it a self-fulfilling prophecy – and potentially a more serious problem than it needs to be.

You can find all our latest inflation-related coverage in one place here.

How private debt came through the pandemic
A striking statistic emerges from a new paper published by Paris-based fund manager Tikehau Capital. Namely, within the firm’s fourth European direct lending portfolio, over 89 percent of state-backed loans have remained on balance sheets. While governments stepped in to guide companies through the pandemic, in many cases that help did not ultimately prove necessary.

In the paper, Tikehau identifies three factors that were critical to private debt firms steering through the crisis successfully. First was “manoeuvrability in covenant renegotiation” which meant difficult capital structure decisions as companies took on public debt could be made quickly. This process was aided by private debt firms often being sole lenders.

Second, capital provided by private debt firms was “very efficient” as much of it was quickly reallocated to companies in top performing sectors such as software, information technology and healthcare. Third, a secondaries market of scale emerged “to further boost the efficiency of the asset class”.

PwC launches ESG database
It may be specifically for mutual funds, but it’s possible to imagine PwC Luxembourg’s new data-gathering exercise becoming applicable to investment funds in general. The so-called Mutual Funds Poster, to be updated semi-annually, collates environmental, social and governance data which fund managers are obliged to disclose by Sustainable Finance Disclosure Regulation.

The study finds that, as of the first half of 2021, EU-domiciled ESG assets in mutual funds stood at €3.3 trillion, or 32 percent of total EU-domiciled assets under management. The study also revealed that Amundi was the leading asset manager in the space (measured by AUM) with BlackRock second and BNP Paribas third.


CVC completes seventh CLO of the year
CVC Credit, the credit arm of private equity firm CVC, has priced Apidos XXXVIII, a collateralised loan obligation fund, at $508 million, in a transaction arranged by Bank of America. It becomes the seventh new CLO fund CVC Credit has priced this year, with an aggregate value of over $3.5 billion.

Apidos XXXVIII increases CVC Credit’s global assets under management to $30 billion. The transaction has been structured with a five-year reinvestment period and the firm said it was priced at the tight end of the market. As with previous Apidos funds, XXXVIII is primarily comprised of broadly syndicated first lien senior secured loans.

Hire for new Denham platform
Denham Capital, the sustainable infrastructure, energy and resources  investment firm, has hired Iryna Voronova as a portfolio manager for its new Sustainable Infrastructure Credit Platform.

Voronova joins from Siemens Financial Services, where she held senior positions in project and structured finance, specialising in power, oil and gas for the Americas.

The Sustainable Infrastructure Credit Platform launched earlier this year with a $2 billion commitment from Aflac Global Investments.

Chase switches from Garrison to Brevet 
New York-based Brevet Capital, a credit investment and speciality finance firm with a dedicated focus on the government sector, has appointed Brian Chase, former founding partner, chief operating officer and chief financial officer of Garrison Investment Group, as chief operating officer.

Chase will work closely with Brevet’s chief executive officer, chief investment officer and co-founder, Doug Monticciolo, and other senior members of the management team to oversee day-to-day business across the firm and enhance its technology, infrastructure, risk management, strategic planning and new product platforms.

LP Watch

Institution: Employees Retirement System of Texas
Headquarters: Austin, US
AUM: $34bn
Allocation to alternatives: 35.8%

Employees Retirement System of Texas has approved $150 million to VWH Partners III and $117 million to All Seas Capital I, a contact at the pension informed Private Debt Investor.

The $34 billion pension currently has a target allocation of 1 percent to private debt; its current allocation to the asset class is 0.6 percent. ERS Texas’s recent fund commitments have predominantly targeted North American and European corporate and real estate debt vehicles.

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