Loan Note: Time to vote in our annual awards; MV Credit urges managers to prioritise ESG

It's time to make your choices in the 2022 edition of the PDI Awards. Plus: MV Credit issues a challenge to fund managers on ESG; and Oaktree's Howard Marks points to a "sea change" in the investing environment, to private credit's benefit. Here's today's brief for our valued subscribers only.

They said it

“The demand for higher wages during a ‘cost of living crisis’ is not widely contemplated in recent inflation forecasts. This is likely to make recessions globally deeper than anticipated and the dislocations we see in markets today are likely to intensify”

Taken from Private Markets Perspectives, a new series of observations from Private Markets Alpha, the digital marketplace for asset and wealth managers, advisers and family offices.

First look

Votes required: make sure industry leaders are recognised (Source: Getty)

‘Tis the season to get voting
Hard to believe it’s come round this quickly, but we’re once again asking our readers to vote for their peers in more than 50 annual awards categories covering deals, fundraisings, strategies and pretty much all corners of the private debt universe.

Last year, we recorded a record number of votes (almost 12,000) and we’re of course hoping to advance further on that total this time around. Our deadline is Thursday 12 January 2023 (midnight PST). But for peace of mind, why not get it done now? You’ll find our voting page HERE. Many thanks.

Step up ESG efforts, says MV’s Nadal
With more favourable deal documentation comes great responsibility. This is the view of Frederic Nadal, chief executive officer of fund manager MV Credit, who argues that, in a more lender-friendly environment, managers should be structuring terms to make meaningful change in areas such as ESG and DE&I.

He says it’s “worrying” to observe a loss of focus on ESG by some market participants and points out that when private credit firms were recently surveyed by the Alternative Credit Council about the most important non-financial consideration for granting a loan, only 4 percent cited ESG risk awareness/mitigation.

“Now is not the time to overlook the importance of ESG in our industry and the current market conditions provide an opportunity to double down efforts in this area as a lender,” he urges.

Sea change favours credit, maintains Marks
“Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets.” So says Oaktree‘s Howard Marks in his latest memo, detailing what may be interpreted as a rosy outlook for lenders.

In the period from 2009 to 2021, Marks relates, “this was an asset owner’s market and a borrower’s market. With the risk-free rate at zero, fear of loss absent and people eager to make risky investments, it was a frustrating period for lenders and bargain hunters”.

In what he describes as a “sea change” in the investing world, Marks sees inflation and interest rates remaining the dominant considerations for the next several years. He predicts the base interest rate over that period averaging 2-4 percent (near where it is now) rather than the 0-2 percent the world has become used to.

Essentials

Marathon completes its first aircraft securitisation
Marathon Asset Management, a New York-based global investment firm, has closed on its inaugural aircraft securitisation with the placement of $304 million in debt backed by a pool of narrow-body aircraft manufactured by Airbus and Boeing.

The aircraft in the pool have been leased to 10 different airlines across nine countries.

The securitisation, MAST 2022-1, is the first such instrument issued by anyone since June 2022, a thaw in a space widely regarded as frozen. MAST 2022-1 has a senior tranche on investment-grade debt, rated A- by Kroll Bond Rating Agency.

Marathon advises funds that will retain the non-senior tranches.

Joseph Thorstenson, Marathon managing director and head of the firm’s aviation strategy, said: “As the global aviation industry continues to navigate an environment marked by rebounding traveller demand and a shortage of the most in-demand aircraft, we look forward to continuing to find ways to invest in the space and deliver value for our investors.”

A narrow body is an aircraft with a single aisle, generally less than four metres in width. Narrow bodies usually have a shorter range than wide-bodied aircraft, and this means they have been used to move people to and from hubs in a hub-and-spoke system, not for the longer hub-to-hub flights.

In recent years, though, narrow-body craft have acquired a longer range. This trend has fed into a broader move toward point-to-point travel, rendering the traditional hubs less critical. Some of the aeroplanes in the pool underlying MAST 2022-1 are capable of flying transatlantic routes, according to a source familiar with the matter.

European non-listed real estate takes a hit
European non-listed real estate saw a sharp correction in the third quarter of 2022, according to the latest Quarterly Fund Index from the European Association for Investors in Non-Listed Real Estate Vehicles.

The index showed total return falling to -1.6 percent from the 2.61 percent recorded in the previous quarter. This made Q3 performance the worst in the sector since the global financial crisis. The scale of the decline in the third quarter was biggest in the UK, which recorded a figure of -4.79 percent, compared with -1.38 percent for Germany and -1.39 percent for France.

The best performing sector became one of the worst performing as industrial/logistics saw its previous return of 4.21 percent in Q2 deteriorate sharply to -4.06 percent in Q3. Third-quarter performance in the sector in the UK nosedived to -6.80 percent.

Residential was the best performing sector in Q3, showing small positive returns in the UK, France and Germany.

LP watch

Institution: Teachers’ Retirement System of Louisiana Headquarters: Baton Rouge, USAUM: $23.3 billionAllocation to alternatives: n/a

Teachers’ Retirement System of Louisiana has committed $225 million across two debt funds, one managed by Carlyle and another by Berkshire Residential Investments, a contact at the pension confirmed.

At the pension’s September board meeting, TRSL announced that it will be investing $125 million into Carlyle Credit Opportunities Fund III and $100 million to Berkshire Bridge Loan Investors III.

Carlyle’s third fund, which launched this year, will be investing into Western Europe and North America, seeking debt returns. Its predecessor fund surpassed a $3.5 billion target and closed on $4.6 billion in March 2022.

Berkshire’s third loan fund also launched this year and will be investing into the real estate sector, seeking senior debt returns.

The Baton Rouge-based pension’s recent private debt commitments have tended to focus on North America-based vehicles targeting subordinated/mezzanine debt.


Today’s letter was prepared by Andy Thomson with John BakieChristopher Faille and Robin Blumenthal