Loan Note: We reveal the themes shaping private debt; time to enter our 2021 awards

Take a peek into the future of the asset class with this month's special report. Plus: it's awards time and that means reminding us of your firm's achievements during the year so far, and a new strategy launched by AXA IM Alts. Here's today's brief for our valued subscribers only.

They said it

“Inflation is running hotter and is becoming a bigger issue than most analysts previously expected. As such, investors will be trying to get a handle on how the Fed intends to fight the trend of higher prices by starting to raise interest rates.”

Nigel Green, chief executive officer of deVere Group, the UK-based independent adviser.

First look

The future’s here
Whether it’s climate change, technological innovation or simply the changing nature of the marketplace, private debt is proving itself to be a highly adaptable asset class. In our newly published Future of Private Debt report, we look at the 20 big ideas transforming credit investing.

From the rise of Asia-Pacific to supporting the energy transition, and from playing a role in impact investing to embracing the latest technology tools, the report also considers the seven key trends shaping the asset class today.

Our awards are underway
Every year the Private Debt Investor Global Awards have grown in size and number of votes. This year, we know they’re bigger, having added seven new categories including four recognising the importance of sustainable investing. We also strongly suspect the number of votes will increase too, beyond the record number we received in last year’s vote.

To make sure we’re aware of your firm’s achievements during 2021, we invite you to send us your highlights here. This part of the process has a deadline of 19 November, at which point we will begin discussions that will lead to the drawing up of shortlists in 54 categories. We wish everyone who enters the very best of luck.

AXA IM Alts blends expertise for new strategy
Paris-based alternatives manager AXA IM Alts has brought together know-how from its real assets and structured finance teams to launch a new global secured assets strategy.

The strategy will invest through an open-ended vehicle that will cover both public and private markets, aiming to deliver a yield premium over traditional credit while also focusing on capital preservation.

The portfolio will include consumer assets such as asset-backed securities and residential mortgages; corporate assets including collateralised loan obligations, secured and mid-market loans; and real assets including commercial real estate debt and infrastructure debt.

Explaining the new approach, Christophe Fritsch, co-head of securitised and structured assets at AXA IM Alts, said: “We have seen increasing demand from our pension scheme clients for such a strategy in a more flexible format, to account for the different stages of the scheme’s lifecycle they may be at. This latest strategy is in response to that demand, offering our clients exposure to a diversified portfolio of assets across the public and private markets in an open-ended format that provides some liquidity.”

Data snapshot

Allocation expansion. The latest PDI GI 30 report found that the top 30 investors in private debt funds increased their total allocations to the asset class by a massive $150 billion in 2021. The total amount allocated reached $452.6 billion this year, up almost 50 percent from $303.3 billion in the 2020 report, indicating the top LPs are rapidly expanding their commitments to private credit investments.

Essentials

Management shuffle at Barings
Fund manager Barings has announced a leadership change with the appointment of Eric Lloyd as president and David Mihalick as head of private assets. Charlotte, US-based Mihalick will report directly to chief executive officer Mike Freno.

Mihalik will now have responsibility for global private finance, private placements and infrastructure debt, private structured finance, funds and co-investments and private equity real assets.

As president, Lloyd, who was formerly head of private assets, will lead and manage cross-asset class teams and business development functions including: distribution; product management; investment business management; research, analytics and quant; strategy and business development; permanent capital; special situations; marketing; and communications. He will retain his title as chairman and chief executive officer of Barings BDC.

New real estate debt mandate for PATRIZIA
PATRIZIA, the Germany-headquartered real assets manager, has taken on a new mandate focused solely on real estate debt.

The PATRIZIA Global Real Estate Debt mandate is aiming to invest an initial $50 million of capital in up to four investments across Europe and Asia-Pacific. It will target annual net returns of over 8 percent in US dollar terms. The client is an unnamed Hong Kong insurer which has committed the initial $50 million “with an intention to expand the mandate further”, according to a statement.

Through its subsidiary, PATRIZIA Global Partners, the firm already has a track record of over a decade in real estate debt investment through local partners and has more than $2 billion in direct exposure to real estate debt investments across Asia, the US and Europe through more than 130 loans.

LP watch

Institution: Los Angeles County Employees Retirement Association
Headquarters: Pasadena, US
AUM: $71.98 billion
Allocation to alternatives: 26.7%

Los Angeles County Employees Retirement Association has issued a request for proposal for an illiquid credit emerging manager programme separate account manager. The deadline for intent to respond is 26 November 2021.

According to the RFP document, the separate account manager would be expected to source, conduct due diligence on, and manage a portfolio of illiquid credit emerging managers. The RFP mandate proposal is for an allocation of approximately $750 million.

LACERA currently has a 7 percent target allocation to illiquid credit. The pension plans to allocate 15 percent of its illiquid credit portfolio to its emerging manager programme.

The pension currently allocates 2.8 percent of its full investment portfolio to illiquid credit. Jonathan Grabel is LACERA’s chief investment officer.

Institution: Orange County Employees Retirement System
Headquarters: Santa Ana, US
AUM: $21.5 billion
Allocation to alternatives: 2.2%

Orange County Employees Retirement System approved its private credit pacing plan of $200 million to $300 million per year on a three-year basis at its October 2021 investment committee meeting, a contact at the pension informed PDI.

Highlights from OCERS’ October 2021 investment committee meeting:

As of 30 June 2021, the market value of OCERS’ private credit portfolio was $482.6 million, which accounted for 2.2 percent of its investment portfolio. The pension’s private credit target allocation is 2.5 percent.

OCERS recently committed $75 million to Crayhill Principal Strategies Fund II, which represents its only commitment to a private debt fund in 2021 to date.

The recommendation, put forth by its investment consultant Meketa Investment Group, calls for the pension to target $200 million in commitments on a rolling three-year average in 2022. The annual commitments will then increase to $250 million and remain at that level until 2027, after which it will increase to $330 million.

For each year, OCERS plans to commit to three to five partnerships that will provide diversification across investment opportunities. Its legacy commitments have been heavily focused on mid-market direct lending.

The pension’s long-term allocation to private credit will continue to focus on diversifying yield-oriented strategies.


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

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