Thanksgiving, baseball and relentless positivity: all embraced in the US, but not so much in Europe. Another is permanent capital, the subject of our upcoming September issue cover story.
In the US, permanent capital is a big deal – largely because of the business development company market, enabled in 1980 and now comprising around 100 listed vehicles worth a total value of more than $30 billion backing US mid-market businesses.
In Europe, there is no BDC equivalent. The asset class is much less mature than in the US and lending rules and regulations vary greatly between different countries, making a pan-European BDC-type approach highly challenging. Individual markets, meanwhile, just don’t have sufficient scale to support such a market.
This is not to say, though, that there is no appetite for vehicles that enable a longer-term approach to private debt than that allowed by the ubiquitous closed-ended fund. When it comes to BDCs, European investors have supported that market, lured by the tax breaks and – because there is no equivalent elsewhere in the world – the diversification it offers. This is despite the high fees, it should be noted.
In Europe, while primary evergreen funds are few and far between, we have learnt from our research for the cover story that there are many open-ended separately managed accounts and segregated mandates that invest alongside closed-ended funds. Market sources also expect longer-term options to grow as private debt’s secondary market matures further.
For institutions, evergreen strategies allow them to maintain a steady pace of commitment and deployment, avoiding large distributions and drawdowns and enabling them to keep their exposure stable. For fund managers, permanent capital means permanent investing firepower and less reliance on the vagaries of the fundraising cycle.
Sources also advise that the advance of the non-sponsored market – which might be expected to grow as returns are driven down by competition in the private equity market – lends itself to the provision of longer-term capital. Here, it’s not so much about one-off loans for a particular situation as building relationships to enable businesses to grow over many years. Fulfilling the relationship role, in other words, that the banks used to dominate but where they have loosened their grip.
It’s early days but permanent capital appears set to build a permanent home, on this side of the Atlantic as well as on the other.
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