Loan Note: Top predictions for the year ahead; defaults likely to rise in Europe

Yes, it's time to dust off that crystal ball again, with plenty of contributions to the annual contest for soothsayer of the year. Plus, why European corporate defaults look set to rise and a reminder that our annual awards voting comes to a close tomorrow. Here's today's brief for our valued subscribers only.

They said it

“Many family offices saw the market turbulence caused by the pandemic as a period of short-term volatility, with the majority not looking to make material changes to their asset allocation”

Sheryl Needham, managing director and head of EMEA family offices at BlackRock, commenting on the findings of the firm’s Global Family Office Survey

First look

Ready for some surprises?
It seems safe to say few could have accurately foreseen what 2020 had in store. With this in mind, could it be claimed that the rather large numbers of predictions we always see at the dawn of a new year are, to put it bluntly, futile? That’s certainly possible, but let’s face it, they’re also good fun. And none more so than Blackstone’s Ten Surprises of 2021, in which Washington builds a more constructive relationship with Beijing, vaccines enable a return to “a form of normal” by the US Memorial Day holiday at the end of May, and energy stocks are among the best performers of the year.

There’s plenty of crystal ball gazing out there – much of it compelling, if not quite as entertaining as Blackstone’s version. BlackRock goes to the top of the class for the amount of homework it has done, with its 2021 Global Outlook containing reams of data and analysis covering broad economic trends, asset class views and a section dedicated to inflation. The asset class section grades the prospects for credit and private markets as “neutral”. On credit, it says: “We see the economic restart and ongoing policy support helping credit perform, even amid tighter yield spreads and the wind-down of some emergency credit support.”

And then, as you’d expect, a certain Private Debt Investor also has a few thoughts on the year ahead. See here and here for some of our coverage on this, as we obtain insights from the likes of White Oak’s Andre Hakkak and North Wall Capital’s Fabian Chrobog.

A shot in the arm, but an end to the corporate lifeline
A successful mass vaccination programme and consequent economic growth together make up the dream scenario many are pinning their hopes upon. However, this may only serve to highlight the problems facing European corporates, according to a report from S&P Global Ratings entitled A long unwinding road.

The report says that, as economic activity starts to normalise, government support packages will be wound down and insolvencies and defaults will spring upwards. S&P predicts that the European speculative-grade default rate will increase to 8 percent by the end of September from 5 percent at the end of last year.

Unsurprisingly perhaps, S&P thinks travel, leisure, hotels and non-essential retail are likely to be the most severely affected industries.

Essentials

Vote now! Time is running out
A quick reminder that the clock is ticking fast in terms of registering your votes for our annual awards. The poll, which has seen a hugely gratifying level of support, comes to a close at midnight PST tomorrow, Friday 8 January. Make sure your opinion counts!

New real estate hire for SVPGlobal
SVPGlobal, which focuses on distressed debt and private equity opportunities and has $10 billion in assets under management, has unveiled Sujan Patel as its new head of real estate. Patel will also serve on SVPGlobal’s 16-person management council. He was previously managing director and co-head of US investment management at Colony Capital.

LP watch

Institution: Ventura County Employees Retirement Association
Headquarters: Ventura, US
AUM: $5.62bn
Allocation to alternatives: 26.6%

Ventura County Employees Retirement Association agreed to commit $50 million across two private debt vehicles at its December retirement board meeting, a contact at the pension informed PDI.

The commitments comprised $25 million each to Torchlight Debt Opportunity Fund VII and Crayhill Principal Strategies Fund II.

VCERA’s recent private debt commitments have been to vehicles focused on the real estate and corporate sectors in North America.

The $5.62 billion US public pension has a 3.0 percent target allocation to private debt that currently stands at 1.8 percent.

Institution: Virginia Retirement System
Headquarters: Richmond, US
AUM: $85.10bn
Allocation to alternatives: 24.2%

Virginia Retirement System confirmed a $300 million commitment to Ares Private Credit Solutions II at its December board meeting, a contact at the pension informed PDI.

Ares Management’s second private credit solutions vehicle is in market targeting $4 billion in equity capital. The fund’s predecessor held a final close on $3.4 billion in December 2017.

VRS’s private debt portfolio is housed within its credit strategies asset class, which makes up 13.8 percent of the pension’s full portfolio offering.

VRS’s recent private debt commitments have tended to target senior debt funds focused on lending within North America or globally.


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

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