Private debt’s PR scrap
It was fully 18 years ago that private equity practitioners in Germany discovered how damaging negative public relations can be when senior politician Franz Muentefering dubbed them heuschrecke (locusts). It was a tag that the industry in that market faced an almighty struggle to shake off.

Private debt has, overall, not faced the same level of PR challenge as private equity over the years – although the term “shadow banking” has always been viewed as an unhelpful characterisation of non-bank lending. But a recent Bloomberg article by columnist Nir Kaissar prompted a swift response from a private markets industry body.

In the article (registration required), Kaissar said direct lending to small and mid-sized firms had only a “veneer of stability that could easily be punctured by higher rates and a downturn” and that the attractions of direct lending were probably “too good to be true”. OK, none of it was a blow to the solar plexus on the scale of the locust debacle, but the swiftness of the response from the Washington, DC-based Managed Funds Association (the self-labelled voice of the alternative investment industry) was telling.

In a letter to the Bloomberg editor, Bryan Corbett, president and chief executive officer of the Managed Funds Association, argued that “without the critical capital provided by credit funds, small and mid-size businesses would struggle during already stressed situations”. In response to the suggestion that private credit may now be “too big to fail” and thus pose systemic risk, Corbett claimed contagion risk, taxpayer risk, liquidity risk and concentration risk were all absent from the asset class.

Only a skirmish perhaps, but you never know whether things may escalate – better to rehearse your arguments thoroughly than risk becoming today’s locusts.

How green is your lending?
While the majority of Europe’s real estate property requires upgrading to the latest environmental standards, least of all to avoid obsolescence, there is not yet an industry-wide approach to valuing assets in relation to how fit-for-purpose they are in this context, report our colleagues on Real Estate Capital Europe.

However, a group of large UK commercial lenders has attempted to build one with the publication of a draft ESG framework, designed to help valuers and lenders fulfil their sustainability obligations.

The guidance, which was released on 3 July in collaboration with the UK professional standards association, the Royal Institute of Chartered Surveyors, is a list of what RICS calls the “key considerations” valuers should consider in a valuation report, and includes factors such as green certification and leases, flood risk and an energy-inefficient property’s suitability for secured lending. Describing this as a “useful starting point”, RICS wants feedback from lenders and valuers on how to further develop its ideas.

Earlier this month, the ULI published guidelines on how to incorporate the costs of transitioning assets into property valuations, having warned of a “carbon bubble” in pricing.

Secondaries not going cheap
Private debt secondaries are commanding only small discounts according to research from Jasmin Capital, a Paris-based private markets advisory firm.

The firm said strong buyer appetite for private debt during the economic downturn means that both large generalist buyers and specialised private debt players are pricing the asset class at low double-digit discounts.

The survey found that 53 percent of private debt secondaries buyers had an expectation of a 10-20 percent discount, while 32 percent expected zero to 10 percent, and 15 percent expected between 20-30 percent.

This was a similar outcome to infrastructure, where 56 percent are expecting discounts of 10-20 percent only, due to the asset class’s predictability of cashflows over the long term.

By contrast, 75 percent of investors in venture capital and growth would expect a discount of between 50-70 percent “on the back of high uncertainties about asset valuation”.

Essentials