Loan Note: Private markets pile into ESG assets; GPs’ brand awareness in decline

A big increase is expected in ESG assets under private market ownership. Plus, alternative asset managers' weakening brand awareness and the latest fund launches. Here's today's brief for our valued subscribers only.

They said it

“With the real rate of interest in short-term or 10-year debt… the government is begging you to borrow money”

Stephen Nesbitt, chief executive and chief investment officer of Cliffwater Research in the firm’s Quarterly Asset Allocation Update.

First look

Private markets’ appetite for ESG assets soars
The value of environmental, social and governance assets held by private markets managers is expected to skyrocket over the next few years, according to a new study, and reach €1.2 trillion by the end of 2025.

The EU Private Markets: ESG Reboot report from PwC Luxembourg predicts that such assets will account for between 27.2 percent and 42.4 percent of the private markets industry’s total asset base by 2025, compared with 14.8 percent in 2020. Around a third of these assets – between 31 percent and 35.9 percent – will be based in Europe.

The survey also lays bare the extent of investor enthusiasm for ESG assets. All investors that currently don’t invest in ESG through private markets say they intend to do so over the next two years. Nearly two-thirds (63 percent) of investors say they plan to increase their allocations over that period.

In private debt specifically, ESG assets are tipped to reach €78.8 billion by 2025, accounting for as much as 21.3 percent of European private debt assets under management by that point.

The report surveyed 200 general partners and 200 limited partners representing €46 trillion in assets under management. For the purposes of the report, ESG assets were defined as either Article 8 or 9 assets within the Sustainable Finance Disclosure Regulation framework.

Alternative manager brands weakening
When you’re doing good things you want to shout it from the rooftops, right? If so, it’s where the alternative asset industry is increasingly falling down. The new Alts 50 report from PR firm Peregrine Communications finds that the brands of two-thirds of alternatives managers are in decline.

“While 2020’s rising tide may have lifted many boats in terms of assets under management, it’s clear that only a handful of alternative investment managers are managing to capitalise on this in regard to their brands,” says Anthony Payne, chief executive of Peregrine Communications.

Only 20 percent of alternatives managers made it into the best-performing category when it comes to branding, with Blackstone sitting on top of the pile followed by Citadel, Man Group, Advent International and KKROaktree Capital is the only solely credit-focused manager in the top 10.

Essentials

CIFC, Texas pension launch leveraged loan fund
Global credit specialist CIFC and public pension the Teacher Retirement System of Texas last week announced the launch of a new leveraged loan investment fund platform, according to a release.

Texas Debt Capital will provide up to $2 billion of loan purchasing capacity in the US and Europe via high-quality senior secured loans, including those issued by TRS’s private equity investment partners.

“As TRS is already one of the [US’s] top private equity investors, the creation of this platform to invest in sponsored loans represents an exciting strategic innovation for TRS,” said the pension’s chief investment officer Jase Auby. “We are pleased to leverage CIFC’s track record as a best-in-class alternative credit manager to gain long-term exposure to this attractive total return.”

Emerging market fintech fund halfway to target
Lendable, a UK-based emerging market fintech credit provider, is on its way to raising a $100 million closed-end fund focused on emerging and frontier market fintech investments.

The Lendable MSME Fintech Credit Fund is designed to unlock access to financial services for more than 150,000 micro, small and medium-sized enterprises, providing investors with high-impact exposure to African and Asian markets and the potential for high uncorrelated returns.

Backed by impact investors and development finance institutions, the fund has ‘soft’ commitments of $49 million from DFCDFATCalvert Impact Capital, CeniarthBIOFMO and FSD Africa. Another $20 million is said to be on track to close in the fourth quarter and the fund is expected to have a final close at more than $100 million in 2022.

The vehicle is a five-year blended finance closed-end Luxembourg reserved alternative investment fund, with FSDA and DFAT providing the first loss capital tranche.

Strong demand for non-listed real estate debt 
Last year saw the highest share of capital raised for European non-listed real estate debt products since 2015, with a sharp increase to 19 percent of the total from just 5 percent in 2019. Equity real estate players in search of yield are stepping in to fill the funding gap in the market, and are attracted by the diversification benefits that non-listed real estate debt has to offer.

European investors in particular are expected to continue allocating to the asset class. The ANREV/INREV/PREA Investment Intentions Survey 2021 highlights that 21.9 percent of European investors plan to increase allocations to European non-listed debt products over the next two years (up from 16.3 percent in 2020). Similarly, 28.1 percent expect to maintain their current allocations and none indicate an intention to decrease their allocations over this period.

Mayer Brown hires private credit lawyer from Ropes & Gray
Global law firm Mayer Brown has hired private credit lawyer Joanne De Silva as a partner in its banking and finance practice. De Silva joins the firm from Ropes & Gray.

“We already have a strong position in private credit and Joanne signifies the building of a New York-based team as our practice continues to expand to meet client demand,” said Jon Van Gorp, chair at Mayer Brown, in a news release.

De Silva will focus on representing financial institutions in transactions, including senior secured, unitranche, second lien, mezzanine and distressed financings. She joins with experience in intercreditor arrangements.

LP watch

Institution: Arkansas Teacher Retirement System
Headquarters: Little Rock, US
AUM: $21.2bn
Allocation to alternatives: 21.5%

Arkansas Teacher Retirement System has confirmed $90 million-worth of commitments across two private debt funds, according to materials from the pension’s September board meeting.

The commitments comprised $40 million to Almanac Realty Securities IX and $50 million to Chatham Asset Private Debt & Strategic Capital Fund III. The pension has previously invested in the Almanac Realty Securities fund series and committed to the fifth and sixth vehicles.

The $21.2 billion US public pension tends to target North America-focused vehicles pursuing senior or subordinated/mezzanine debt strategies.


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

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