Loan Note: The 50%-plus return aim for covid dislocation funds; M&A wakes from slumber

Why those firms that scrambled to raise dislocation funds early last year stand to reap the greatest rewards. Plus, the M&A market slowly wakes up, and loans take a hit in Asia-Pacific. Here's today's brief for our valued subscribers only.

They said it

“We expect the return generation that attracts investors to private markets will persist, albeit increasingly driven by areas of private markets which are harder to access and demand in-depth expertise”

Taken from the Schoders Outlook 2021: Private Assets study

First look

Dislocation: blink and you’ll miss it 
The global financial crisis was the crisis that kept on giving as far as distressed investors were concerned. In an article here for Private Debt InvestorAlbaCore Capital Group’s David Allen notes that opportunities were still available years after the initial shockwaves had passed – and some positions taken then have still not been exited today.

However, in the past 10 years, says Allen, “the length and severity of credit market dislocations continues to compress”. The covid-related dislocation, he adds, “was over almost before it had begun” with the richest rewards of 50 percent-plus internal rates of return available only in March and early April of last year. In recent months, suggests Allen, dislocation opportunities have been delivering more in the region of 10-15 percent. Still a very decent return for the low interest rate era, but quite a comedown from the initial euphoria.

No wonder, in those early months of 2020, that firms such as AlbaCore and KKR were racing to get dislocation capital raised. KKR famously rounded up the money for its Dislocation Opportunities Fund in just eight weeks.

M&A peers out of its cave
“As the world went into hibernation in the ‘covid cave’, M&A followed. But as the year progressed, parts of the M&A market woke energetically.”

So says DC Advisory in its latest global M&A outlook,The covid cave, hibernation & 2021. As the title would imply, the firm found that the M&A market initially went into a pandemic-related hibernation in 2020, but then began to revive.

Overall, the nine months following March 2020 saw a 20 percent decline in deal volumes and a 13 percent decline in deal value compared with the same period in 2019. DC Advisory estimates that, in 2021, M&A activity might reach almost three-quarters of pre-pandemic levels. Maybe that’s the M&A equivalent of a “new normal”.

Asia-Pac syndicated loans hit eight-year low
The pandemic and the ongoing US/China trade war have had a dampening effect on syndicated loan activity in Asia-Pacific, according to the latest figures from Refinitiv.

The data, which exclude Japan, show the loan volume slid 6.4 percent last year to $434.3 billion. This compared with $464.2 billion in 2019 and was the lowest volume for the last eight years. Over the same period, the number of transactions fell from 1,327 to 1,288.

M&A activity, however, held up well with a 24 percent year-on-year increase to $52.8 billion. Acquisition financings in South Asia, South-East Asia and China were the main drivers of the upward trend.

Essentials

Daly leads Onex’s Europe CLO push
Toronto-based Onex Credit has hired Conor Daly to lead its European collateralised loan obligation platform from April. The firm is building its European CLO franchise as a complement to its growing CLO and other credit platforms in the US. Daly joins from BlackRock, where he was a portfolio manager in the European Fundamental Credit team and was a member of the team that established the firm’s European CLO and leveraged loan business.

Tikehau hires new head of France 
Paris-based manager Tikehau Capital has appointed Laura Scolan to its private debt strategy as head of France and chief operating officer. Scolan will be responsible for private debt investment activities in France and the operational management of Tikehau Capital’s private debt activity. She will report to Cécile Mayer-Lévi, head of private debt. Scolan joins from Messier Maris & Associés, where she was most recently a partner and co-head of the debt advisory business.

LP watch

Institution: State of Wisconsin Investment Board
Headquarters: Madison, US
AUM: $132.06bn
Allocation to alternatives: 17.0%

State of Wisconsin Investment Board has agreed to commit $100 million to TSSP Adjacent Opportunities Partners (open-ended) and $50 million to Harvest Partners Structure Capital Fund III, according to the pension’s Q3 2020 report.

The $132.06 billion US public pension has a 10.0 percent allocation to private debt and equity, which are grouped together as a single asset class within the pension’s portfolio.

The pension’s recent commitments have been to funds focused on the corporate sectors in Asia-Pacific, Europe, the Middle East and Africa, and North America.

Institution: Indiana Public Retirement System
Headquarters: Indianapolis, US
AUM: $38.31bn
Allocation to alternatives: 19.2%

Indiana Public Retirement System confirmed a $100 million follow-up commitment to a separate account managed by HPS Investment Partners at its December 2020 board meeting, a contact at the pension informed Private Debt Investor.

The separate account – known as the Brickyard Direct Lending Fund – is structured with INPRS as the sole investor. The account invests its capital equally alongside HPS’s speciality loan and core senior lending fund series.

INPRS initially committed $100 million to the vehicle in June 2018.

This new $100 million commitment to the separate account will provide capital that will be invested alongside HPS’s Specialty Loan Fund V and Core Senior Lending II vehicles.

INPRS has a 2.0 percent target allocation to private debt which currently stands at 1.9 percent.

INPRS’s recent private debt commitments have tended to target either vehicles acquiring distressed debt or originating subordinated and mezzanine debt.


Today’s letter was prepared by Andy Thomson with John Bakie and Robin Blumenthal.

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