Loan Note: Private debt fund sizes keep rising; family offices embracing ESG

The average size of private debt funds is on the rise. Plus: family offices are starting to prioritise ESG; and our Fund Leaders survey launches. Here's today's brief for our valued subscribers only. 

They said it

“The triple whammy of the rapid hike in borrowing costs, a super-tight labour market and onerous energy bills has been too much to bear for many firms”

Susannah Streeter, head of money and markets at financial adviser Hargreaves Lansdown, commenting on Office for National Statistics data showing UK corporate insolvencies jumped 40 percent in May 2023 compared with a year earlier

First look

Scaling up: the average private debt fund size is heading towards $1 billion (Source: Getty)

In private debt, size matters
One of the findings of our recent Decade issue was the rapid advance in the sizes of private debt funds. Increasing concentration of fundraising among the top managers and decreasing vehicle launches means the average fund size has shot up in recent years.

While the average fund size was typically around $500 million between 2012 and 2020 (with a notable exception in 2017 when it surpassed $600 million), 2021 and 2022 have seen the average size advance rapidly to $856 million and $964 million, respectively.

The Decade issue also noted that North America has long been the most developed market for private credit and was a significant player before the global financial crisis.

Even today, much more capital is raised for North American vehicles than European. The US has been able to reassert itself since the covid crisis, while Europe has struggled during a period of sluggish economic growth marked by an energy crisis and the war in Ukraine.

The data also reveals that private credit has yet to materially take off beyond Western markets. Activity is fairly low in the Asia-Pacific region, and virtually unheard of in the developing world. Over the next decade, it will be interesting to see whether that changes and private debt lays claim to being a truly global asset class.

Keeping ESG in the family
ESG is set to become a larger focus for family office investors. According to research by fund services firm Ocorian and reported by our PEI colleagues, 93 percent of family office professionals surveyed said ESG principles are a key consideration in investment priorities.

Looking ahead, 88 percent of respondents expect an increasing focus on ESG principles from a fiduciary perspective over the next three years, while 37 percent expect a dramatic increase.

The survey garnered responses from 130 family office professionals responsible for around $62.4 billion of assets under management.

“We’re seeing many family offices, particularly those with a heavy influence from younger generations, bringing in new ideas and values which increasingly align with sustainable investing principles,” Amy Collins, head of family office at Ocorian, said in a statement.

These findings may well vary depending on geography. Among the Asia-based family offices PEI has spoken to in recent months, ESG considerations have generally sat relatively low on their list of priorities; part of which is to do with the comparative nascency of ESG, sustainability and impact in that part of the world more broadly.

Indeed, a November report from Raffles Family Office and Campden Wealth found that only 42 percent of APAC families engage in sustainable investing.

Next stops: Japan and Korea
A heads up that our Private Debt Investor events calendar, which has already encompassed Singapore and London this year, takes us to Seoul and Tokyo between 26-29 June for Japan Korea Week.

The fifth iteration of our annual visit to two of Asia’s most important investor hubs has already attracted more than 300 Japanese and Korean institutions and global private debt leaders.

Among the keynote speakers at the event are Tadasu Matsuo, managing director and head of global alternative investments at Japan Science and Technology Agency; Andrew Lockhart, managing partner at Metrics Credit Partners; and Todd Leland, president of Goldman Sachs International.

If you haven’t already, make sure to book your place now!


Fund leaders survey: we’d love to hear from you! 
This year’s Fund Leaders survey is now up and running and we are wanting to hear from you! Submit your form to us by 17 July and you will get a complimentary copy of the results when they are published at the end of July as well as entry into a prize draw to win a $250 Yeti Cooler.

Topics covered in this year’s survey are as follows:

  • Fundraising (market sentiment, factors impacting performance, performance predictions);
  • Sources of capital (private wealth capital, digital fundraising platforms, geographic distribution of investors, continuation funds);
  • Headcount and AI (changes in headcount, priority areas for increasing headcount, AI implementation across firms);
  • ESG and DE&I (factors driving ESG adoption, link between ESG and performance/value creation, DE&I in portfolio companies);
  • GP stakes (GP stakes interest, objectives, and considerations in selecting buyers).

UK hire for Antares
Chicago-based Antares Capital has hired Sheila Brown as managing director, head of UK/Europe investor coverage within the firm’s Asset Management Group. Brown will be based in the UK, becoming the firm’s first employee outside of North America, where she will cover UK and European investors interested in direct lending and liquid credit strategies.

Brown has more than two decades of financial services experience, having previously been managing director, UK/European business development at Hayfin Capital Management, where she was involved in over €5 billion of capital raising across direct lending, special opportunities, high yield/syndicated loans and healthcare strategies. She was Hayfin’s first dedicated UK-focused business developer, and also served as chair of the firm’s ESG Committee.

Prior to Hayfin, Brown held roles in account management and consultant relations at PIMCO Europe, and served as the firm’s head of DC distribution, EMEA. She started her career in investment banking at Lehman Brothers.

CLO number six for CVC
CVC Credit has closed Cordatus XXVIII, the sixth collateralised loan obligation of 2023 from CVC’s €36 billion credit platform.

The new vehicle totals around €375 million and brings CVC’s aggregate value of newly priced CLOs this year to €2.5 billion. CVC said Cordatus XXVIII was raised from a broad group of new and existing investors. Barclays acted as the lead arranger.

Guillaume Tarneaud, partner and head of European performing credit at CVC Credit, said: “We are delighted to have priced our third new issue European CLO in 2023. While the market remains tough, we saw oversubscription across tranches, driving some of the tightest mezzanine prints in Q2 2023.”

LP watch

Institution: Maryland State Retirement and Pension System
Headquarters: Baltimore, US
AUM: $64.36 billion
Allocation to private credit: 3.5%

Maryland State Retirement and Pension System announced its Q1 2023 private debt commitments in its May investment committee meeting. The public pension fund made the following commitments:

Taurus Fund Management‘s first mining royalty fund was launched in March 2023 with a subordinated/mezzanine debt strategy, investing primarily in Australia.

Hayfin Capital Management‘s debut healthcare opportunities fund was launched in July 2021 with a target size of $500 million. As of July 2022, the fund had raised $150 million.

SLA Marcus Co-Invest is managed by Silver Lake, a North American investment firm specialising in venture and subordinated debt.

In its private credit pacing plan for 2023, Maryland SRPS outlined its aim to commit $1.5 billion towards private debt funds. Further, the pension fund sought to diversify its debt strategies while increasing its allocation to co-investments.

Platinum subscribers may click here for the investor’s full profile, including key contacts, allocation strategy and fund investments.

Today’s letter was prepared by Andy Thomson with John Bakie, Christopher Faille and Robin Blumenthal contributing