Loan Note: S&P predicts issues for some AIFs over the coming year; performance holding up well

S&P is wary of alternative investment funds taking on more fund-level debt. Plus: surveys show solid private debt performance; and the latest from the hiring frontline. Here’s today’s brief for our valued subscribers only.

They said it

“Fitch Ratings has cut its forecast for 2023 default rates for European leveraged loans, reflecting a modest decline in Fitch’s Loans of Market Concern list”

From Fitch Ratings’ September 2023 European At-Risk Leveraged Credit report

First look

Piling it on: more debt seen as the answer to liquidity issues by some PE firms (Source: Getty)

S&P concerns over fund-level debt
Some global alternative investment funds will come under pressure over the coming year, according to a new report from S&P Global Ratings (see here, login required).

For private equity and venture capital firms in particular, the report says, “valuations are uneven, fundraising is slowing, and liquidity needs are rising for AIFs and their portfolio companies”.

S&P thinks some AIFs will turn to more debt to invest in assets, return capital to investors and support portfolio companies. But fresh fund-level debt will lead to a weakening of funds’ leverage and liquidity outlook, according to S&P, and put current ratings to the test.

The organisation does, however, predict that most ratings will remain solid due to the liquidity provided by the amount of fund-level leverage that’s already in the system.

Despite the liquidity pressure, S&P says it does not expect all AIFs to be affected in the same way – highlighting infrastructure funds as an example of where it expects the affect to be “muted”.

It also maintains that the current investment environment is looking positive for private credit. “Private credit now faces a significant investment opportunity as rates have risen and borrowers seek financing solutions outside banks and public markets.”

First half 2023: Private debt on the march
Burgiss, a US data and analytics firm, reports that the second quarter of 2023 was, in many ways, an extrapolation of the first for the private investment world. Private debt did very well, with senior debt funds returning 3.1 percent in the second quarter, after a rise of 2.3 percent in Q1.

This compares favourably with the broad global private capital funds index, which was up 1.4 percent during Q2, after a rise of 1.5 percent in Q1.

In terms of distributions, though, Keith Crouch, director at Burgiss, observed in a statement on release of the firm’s report: “Further continuing cashflow trends from 2022, distributions remain subdued with the YTD distribution rate remaining below 10 percent – the lowest seen in years.”

The amount of dry powder held by private capital funds is near an all-time high, Burgiss reports, at $1.89 trillion.

Separately, Pitchbook has released a first half 2023 global private debt report that is in broad agreement with Burgiss’s conclusion that private debt is on the march. It says private debt has overtaken venture capital to become the strategy with one of the highest fundraising dollar amounts in the private investment world, second only to private equity.

A call to LPs

Our LP Perspectives 2024 Survey is now live, and we would greatly appreciate your participation as we seek to understand investor sentiment in the private markets today. Here’s the survey link.

Some pointers on this year’s survey:

LP Perspectives is PEI Group’s annual study of institutional investors’ approach to private market asset classes over the coming year. The survey gathers insight on investors’ asset allocations, propensity to invest, performance predictions and views on the wider market.

The results will be published across all our titles.

Respondents will receive the results of the asset class of their choice as a thank you for completing the survey. PEI Group will also donate $5 to UNICEF for each completed response.

The survey takes no longer than 10 minutes to complete, and all submissions will remain anonymous.

The deadline for submissions is this Friday 6 October.


Monroe makes hire in tech finance group
Monroe Capital has expanded its technology finance originations group, bringing in Jeff Kaye from Wells Fargo Capital Finance. He will be based in Monroe’s headquarters in Chicago.

At Wells Fargo’s financial sponsor coverage group, Kaye was responsible for originating recurring revenue and cashflow-based financing opportunities through the West and Midwest of the US.

Tom Aronson, vice-chairman and head of originations at Monroe Capital, said: “Jeff has an accomplished career spanning nearly two decades providing financing solutions to middle-market companies in the software and technology sector, and brings with him many sponsor relationships.”

Also with reference to beefing up its tech finance capabilities: Monroe closed on 5 July 2023 on its acquisition of Horizon Technologies, a venture debt lender headquartered in Connecticut.

Monroe, founded in 2004, has $17.2 billion of committed and managed capital, according to its website.

New hire for Angelo Gordon client group
Angelo Gordon, the New York-headquartered credit and real estate fund manager, has hired Maja Lindstrom, former managing director, EMEA business development at Barings, as a managing director in its Client Partnership Group.

With more than 15 years of business development and investor relations experience, Lindstrom will spearhead the expansion of Angelo Gordon’s client base in Northern Europe and Israel. Based in Copenhagen, she will report to Alan Isenberg, global head of Angelo Gordon’s Client Partnership Group.

“We believe Maja’s significant experience and broad institutional relationships position us well to bring new opportunities to a highly sophisticated investor community,” said Isenberg.

Prior to Barings, Lindstrom served as a director, EMEA business development at Babson Capital Management. Earlier in her career, she held roles in the investor relations and sales teams at Armajaro Asset Management and Storm Capital Management.

LP watch

Institution: New York State Common Retirement Fund
Headquarters: Albany, US
AUM: $248.5 billion
Allocation to private debt: 3.63%

The New York State Common Retirement Fund (NYSCRF) has committed a total of $850 million to two private credit investment vehicles, according to a monthly report.

NYSCRF allocated $250 million to KSL Capital Partners Tactical Opportunities Fund II, which follows a similar investment strategy to its predecessor fund, focusing on corporate sectors in North America.

The fund has also committed $600 million to ICG Excelsior, a vehicle fundraising towards a target of $1.49 billion. ICG Excelsior focuses on subordinated/mezzanine debt strategies within corporate sectors across North America.

NYSCRF is a US public pension fund with a current total value of $248.5 billion and an allocation of 3.63 percent to private investments. The fund’s private debt investments are valued at $9.02 billion.

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