Loan Note: Pandemic-hit fundraising falls further; European leveraged finance surges ahead

Private debt fundraising yet to recover from the ravages of the pandemic. Plus: the European leveraged finance market is going strong and US industrial credit is showing promising signs. Here's today's brief for our valued subscribers only.

They said it

“We were falling behind other public pension funds in that the majority of other public pension funds had a reference to ESG in one of their governing documents.”

Katy Hoffman, chairman of Teacher Retirement System of Texas‘s internal investment committee, explains why it will consider adding ESG wording to its investment policy statement, as reported by affiliate title New Private Markets(registration required).

First look

No sign of fundraising bounce back yet
In the previous edition of Loan Note, we reported on multiple market sources telling Private Debt Investor to expect a new fundraising wave starting around September this year as investors that have benefitted from strong market conditions look to invest their healthy cash piles.

We did not expect the first half of 2021 to show signs of an upturn yet, and the latest figures from our database unsurprisingly continue to reflect muted appetite. The first half of this year saw less capital raised than the first half of last year, when the initial wave of the pandemic was raging ($88.5 billion versus $93.2 billion). The number of funds achieving closes has also continued its downward slide, with just 94 in H1 2021 compared with 250 in the whole of 2020 (and 416 in the peak fundraising year of 2017).

The first six months provide clear evidence of investors seeking the safest parts of the capital structure, with nearly half (48 percent) of total capital raised being allocated to senior debt strategies.

With Europe having closed the gap last year, the latest figures show North America reasserting itself as the investor destination of choice – accounting for almost $41 billion of capital, compared with just over $26 billion for Europe.

European leveraged finance going strong
“Evidence is still in its formative stages, yet market participants seem to have adopted the view that vaccines have definitively broken the link between infection, hospitalisation and mortality rates,” said a report from S&P Global Ratings (login required here), reflecting on a bullish first half of the year for the European leveraged finance market.

In a strong period for sponsor-backed issuance, mergers and acquisitions, leveraged buyouts and dividend recaps were driving activity as strategy shifted from defensive portfolio management to new capital deployment. Rating upgrades outnumbered downgrades and credit quality stabilised across nearly all sectors, except those “affected by the vestiges of lockdown restrictions across the eurozone”.

One word of warning, however. While S&P noted the dovish stance of monetary policymakers, it concluded that “inflation remains one of the key risks for the second half of the year”. It did add, however, that “transitory” inflation risk was its base case.

US industrials credit quality rises 
For the fifth month in a row, credit quality in US industrials has maintained a strong position and is on the rise.

Credit Benchmark’s credit consensus indicators (CCI) index tracks the upgrades and downgrades every month to track trends in industrials for the US, UK and EU. A monthly CCI score of 50 shows neutral credit quality while above 50 shows quality is improving and below 50 shows quality is deteriorating.

The US scored 55.9 this month, according to Credit Benchmark, which is its fifth consecutive month above 50, with each month seeing a higher score than the last. It is also the highest score since January 2017.

Meanwhile in the UK and EU, CCI scores have swung in and out of positive and negative terrain.

Essentials

Archway initiates $150m distressed lending programme
Los Angeles-based alternative investment firm Archway Capital has grown its distressed lending platform and plans to invest $150 million in the next two and a half years.

The firm’s lending platform will now include first mortgage debt, mezzanine capital and preferred and co-GP equity in the range of $3 million to $15 million, secured by real estate. The new additions to Archway’s programme will be alongside its existing lending offerings which include senior debt.

Archway has also announced it hired Max Kirschenbaum, the former founding member of Fundraise, as a director focusing on the firm’s national origination growth, and Greg Schecher as a director focused on the East Coast, who has previously worked with Money360, NAI Global and Keystone Bridge Capital.

Partners Group has $26bn in private debt 
Switzerland-based private markets firm Partners Group recently reported it holds $26 billion of private debt assets under management, which accounts for 22 percent of its total $118.9 billion in assets under management as of the first half of 2021.

Private debt is Partners Group’s second-largest asset class, behind $59 billion in private equity, which accounts for nearly half, or 49 percent, of its assets. Real estate and private infrastructure account for 15 percent and 14 percent, respectively.

Partners Group reported receiving $12.1 billion in new commitments in the first half of 2021, while also committing $13.1 billion into private markets investments worldwide. Of its investments this year, the US accounted for 55 percent of its commitments, with 32 percent in Europe and 13 percent in Asia-Pacific and elsewhere.

New hire links Adams Street to consultants 
Chicago-based fund manager Adams Street Partners has hired Jennifer Brown as partner and global head of consultant relations. She will manage consultant activities worldwide and strengthen relationships with partners seeking to provide clients globally with private equity and private credit solutions.

Brown was previously managing director of the global business development group at Barings, where she led marketing strategy for US consultant relations.

LP watch

Institution: Connecticut Retirement Plans and Trust Funds
Headquarters: Hartford, US
AUM: $43.7 billion
Allocation to alternatives: 20.5%

Connecticut Retirement Plans and Trust Funds confirmed $327 million-worth of commitments to private debt funds at its July 2021 investment advisory council meeting, a contact at the pension informed Private Debt Investor.

The commitments comprised €150 million to ICG Europe Fund VIII, $150 million to Strategic Value Special Situations Fund V and $125 million to BIG Real Estate Fund II.

ICG‘s eighth series European debt fund is in market targeting €7 billion from investors, with SVP‘s fifth special situations vehicle having raised $4.4 billion across a number of interim closes, surpassing its initial $4 billion equity capital target. BIG‘s second real estate debt fund raised over 70 percent of its $550 million target via its first close in June 2021.

Connecticut has a 5 percent target allocation to private debt which stood at 0.8 percent as of 31 May 2021. The pension’s private debt portfolio has a market value of just under $350 million.

The $43.7 billion US pension’s recent private debt commitments have targeted vehicles with strategies varying from senior or subordinated lending to those focused on acquiring distressed debt.


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

Subscribe now and get Loan Note delivered to your inbox twice a week
To find out how, email our team: subscriptions@peimedia.com