PDI annual awards: 2017 Europe winners

The winners and runners-up to the PDI annual awards 2017 in Europe.

Lender of the year

1. Kartesia
2. Alcentra
3. Ares Management

Jaime Prieto

The European private debt market has grown rapidly as the region recovers from the long slump following the financial crisis. With regulations restricting banks, local and international debt funds have been able to step in to provide the capital needed to drive growth.

While mega-funds have dominated the news this year, a more modest fundraising from Kartea of €870 million for its fourth fund took the award.

The fund closed just nine months after launching and raised 70 percent more than its predecessor. The firm focused on expanding its investor base for the new vehicle after existing investors re-upped for the new fund. Kartesia managing partner Jaime Prieto says the firm’s reach across continental Europe has been a major factor in attracting LPs. “At the lower end of the market it’s very important to have that local presence to source deals,” he says.

Senior lender of the year

1. Intermediate Capital Group
2. Alcentra
3. BlueBay Asset Management

London-based ICG smashed its target for Fund III

While many private debt funds can expect to raise more capital as interest in the asset class grows, this year’s senior lender of the year took things to new heights. ICG Senior Debt Partners Fund III originally targeted €3 billion, the same amount raised as ICG’s previous vehicle back in 2015. However, a huge level of investor demand saw it smash through this target to close on €5.2 billion after just five months.

After this rapid fundraising round, ICG has recently announced it is going to up its game by doubling its annual fundraising target from €3 billion to €6 billion. With its last fund shooting so far over its target, ICG is likely to set an even higher goal for its next vehicle.

Junior lender of the year

1. Kartesia
2. Intermediate Capital Group
3. Park Square Capital

Junior lending is becoming one of the more exciting areas of private debt finance in recent years as firms look away from private equity-sponsored deals to more complex non-sponsored packages. Kartesia told PDI it is increasing its own focus on these types of deals, and managing partner Jaime Prieto says: “We’re now more interested in sponsorless deals, but you have to be able to structure a custom finance package for the company and you need a good team to support this.”

Flexibility is very much key in the junior finance space, with firms often having complicated financing requirements and lenders facing equally complex risk assessments which call for bespoke arrangements that are typically unavailable from banks.

Lower mid-market lender of the year

1. Oquendo Capital
2. Beechbrook Capital
3. Harbert Management Corporation

Alfonso Erhadt

Oquendo Capital had an incredibly busy 2017. It finished investing its second fund and successfully raised its third – which was already oversubscribed at the first close – all the while completing eight deals.

This feat alone is impressive, but Oquendo has achieved this in two of Europe’s least developed private debt markets: Spain and Portugal. The firm has played a major role in bringing the private debt formula to this largely unexploited region that Oquendo says is ripe with opportunities in the lower mid-market. “There is an untapped market in Spain and Portugal and the development of private debt is a few years behind other countries. The market is smaller but we see a lot of dealflow and the economy in Spain is doing well so we expect that will continue,” says Oquendo partner Alfonso Erhadt.

Distressed debt investor of the year

1. Apollo Global Management
2. Cerberus Capital Management
3. AnaCap Financial

It might be expected that, at a time when the world economy is making a strong recovery from the aftershocks of the financial crisis, there would be little room for distressed debt funds. Despite this, Apollo Global Management has raised enormous sums devoted to such opportunities. In 2017, it raised $4 billion for its European Principal Finance Fund III, which targets distressed and repossessed real estate assets and non-performing loans. It also launched a €1 billion joint venture with Palmira to acquire NPLs.

Tightening regulation, particularly in Europe, has caused many banks to unwind their NPL holdings and Apollo’s fundraising means it is well poised to take advantage of the situation.

It finished off the year announcing a $25 billion private equity fund with a significant allocation to distressed debt opportunities, which means the fund manager sees many opportunities to benefit from private debt in the years ahead.

CLO manager of the Year

1. Spire Partners
2. Alcentra
3. BNP Paribas

Phil Bennett-Britton

CLO management is typically dominated by the major players with vast sums of capital to deploy, but Spire Partners came through a David and Goliath-style battle to take home the award this year.

The manager said 2017 was a critical year for the firm as it crossed the €1 billion threshold for the first time and reached a final close on its third CLO vehicle, Aurium CLO III DAC.

“This is an acknowledgement that we have been more returns focused in a field typically dominated by large institutions who are globally diverse and where it is unusual to see small boutiques competing,” says partner Phil Bennett-Britton. Partner Oliver Drummond Smith adds: “Being smaller in this market means we can be more nimble in the way we manage our fund and it makes it easier to only select the best assets.”

Infrastructure debt manager of the year

1. AXA Investment Management
2. Allianz Global Investors
3. Schroders

In late 2016 AXA Investment Management hit the ground running with the launch of a new infrastructure debt vehicle. The fund held a first close of €730 million before going on to raise a total €1.2 billion.

The fund forms part of its Real Assets division and will look to invest in primary and secondary opportunities, particularly on brownfield sites. However, it will also look to co-invest alongside the firm’s infrastructure finance team to secure larger deals.

Allianz Global Investors just missed out this time. It is thought to be approaching a first close for its second UK infrastructure debt fund at £500 million ($704 million; €563 million). This would be well ahead of the £265 million raised for its first vehicle and may well put it in the running to win next year’s awards.

Real estate debt manager of the year

1. AXA Investment Management
2. Cerberus Capital Management
3. LaSalle Investment Management

AXA is now onto its 10th RE fund

Real estate debt is the kind of investment that can take a lot of time to come to fruition and this year’s winner is a firm that has been in the game for a very long time. In 2017 AXA Investment Management closed its 10th real estate debt fund, CRE Senior 10, on €1.5 billion.

However, despite this legacy, this latest fund is the first time AXA IM has expanded its geographic mandate into the US and is able to allocate up to 25 percent to this market. AXA has not only been busy on the road fundraising but also investing at a brisk pace, with more than a quarter of the fund now thought to be deployed in various investments.

Law firm of the year

1. Dechert
2. Paul Hastings
3. Macfarlanes

Gus Black

“What we are good at is helping our clients do what they want to do,” says Gus Black, partner and global co-chairman of Dechert’s financial services group. In 2017, this included plenty of structuring of direct deals and co-investments, as well as helping investors gain access to niche strategies.

Among the firm’s structuring activities last year were establishing a closed-ended master feeder structure in Delaware and Cayman investing in US oil and gas royalties for a European special situations manager; and advising on the launch of two closed-ended loan origination funds available to US tax-exempt, US tax-paying and international investors. On the deals front, Dechert advised on a number of transactions completed by Ares Management and also on CVC Credit Partners’ provision of facilities for the TWMA Group deal.

Reflecting on the way in which Dechert pushed hard into private debt following the GFC, Black says: “Relatively few law firms have put a huge emphasis on private debt in the way we have. A lot have legacy banking practices and have been slower to see the evolution from banks to alternative lenders.”

Placement agent of the year

1. Credit Suisse Private Fund Group
2. Arbour Partners
3. Probitas Partners

“We continue to see new LPs coming to us and wanting to access the asset class,” says Will Hayles, director in the Credit Suisse Private Fund Group. “Although some investors are sitting and waiting to see how their initial investments play out.”

Where this ongoing demand exists, Credit Suisse PFG has proved itself adept at identifying and engaging with it. Among the firm’s mandates last year was advising on the €2.2 billion Hayfin Special Opportunities Fund II. The group has also been very successful in tapping the European investor base, having raised about $7.5 billion from Europe for its global fundraising mandates by the end of November last year.

Active since the late 1990s, Hayles says his firm has “known the investor base for such a long time. We can look across their portfolios and see where they are missing exposure and which new and appropriate strategies we can bring to them”.

Speciality finance provider of the year

1. Wells Fargo Capital Finance
2. Investec Aviation Finance
3= IPF Partners
3= Prime Capital

“ABL is viewed as a reliable solution for its core users, and although it’s not the most exciting area of finance, it is growing in popularity. Primarily because it’s increasingly viewed as an alternative form of financing predicated on supporting good old fashioned businesses that power UK plc,” says Steven Chait, head of the EMEA region for Wells Fargo Capital Finance, referring to asset-based lending.

At his former employer Burdale Financial and for the last six years at Wells Fargo, Chait and his team have been banging the drum for a relatively below-the-radar type of lending. The award for speciality finance provider of the year is a strong hint that deserved recognition is now forthcoming.

In 2017, Wells Fargo backed the likes of Nisa Retail, the convenience store operator, and aerospace firm Arlington Industries. “We compete with non-regulated funds and the leverage market, but along with increased awareness and our ability to tailor facilities, firms can get very competitive pricing through our ABL solutions,” says Chait.

SME lender of the year

1. Beechbrook Capital
2. Octopus Investments
3. Funding Circle

“There continues to be a significant opportunity as there is limited competition from other managers and the banks are not as aggressive as they are in the mid-market and upper mid-market,” says Paul Shea, co-founder of Beechbrook Capital, of the European SME lending space. In 2017, London-based Beechbrook closed its UK SME fund on £150 million ($211 million; €169 million) and completed 12 deals, putting to work around £83 million of capital.

While there are an estimated 40,000 SMEs in Beechbrook’s target size range in the UK alone, Shea says the key to investing successfully is to have “the depth and breadth of experience to analyse and select the best SMEs to invest in, as well as being able to execute deals and manage the investments. These companies are not always polished diamonds when you first invest”.

Despite Brexit-related political uncertainty, Shea says he is “not expecting any major shocks” and is “cautiously optimistic about the UK and European economies” in the year ahead.

Deal of the year

1. Soho House (Permira Debt Managers)
2. Synerlab (Intermediate Capital Group, Goldman Sachs)
3. TWMA (CVC Credit Partners)

A strong brand, low turnover of members and valuable property were among the reasons why Permira Debt Managers was drawn to Soho House, the private members’ club business.

It was in 2013 that PDM first backed the firm, taking a 10 percent slice of a high-yield bond issue. That foot in the door meant that “we got to know the business well and became increasingly positive about the opportunity for capital to drive growth”, says Thomas Kyriakoudis, PDM’s chief investment officer.

He says the business was highly cash generative and that capex could be deployed to genuinely support its expansion. The culmination of getting to know Soho House was the £375 million refinancing led by PDM in April, which was the fund manager’s largest-ever private debt deal. Kyriakoudis says doing large deals such as this is a continuing ambition. “As funds under management have grown, bigger and higher quality companies have come more within reach.”

Fundraising of the year

1. Intermediate Capital Group
2. Kartesia
3. Hayfin Capital Management
Size and speed were two of the defining characteristics as Intermediate Capital Group, the London-listed fund manager, took Europe’s fundraising of the year crown. The size aspect was impressive as the third vintage of ICG’s Senior Debt Partners (SDP III) strategy raked in €5.2 billion, beating a €3 billion target and becoming the largest direct lending fundraising globally in 2017. The speed of the raise was also striking. Typically, such funds take around a year-and-a-half to wrap up: ICG’s was put to bed in a mere five months. Sources tell us the fund was significantly oversubscribed, drawing strong support from existing and new investors. It also helped to push ICG into larger deal territory. ICG fended off competition in this category from Kartesia, which beat its fundraising target after less than nine months on the road, and Hayfin, which reached €3.6 billion for its second directlending strategy – beating a €2.25 billion target.

Investor of the year

1. Caisse de Dépôt et Placement du Québec
2. British Business Bank
3. PensionDanmark

As a statement of intent, it was impressive. In September last year, Caisse de Dépôt et Placement du Québec, the $286 billion Canadian pension fund, announced the hire of Luis Mayans as head of private debt in Europe.

Mayans had already carved out a reputation for himself on the GP side as managing director at Avenue Capital Group, where he played a key role in the firm’s direct lending strategy, including portfolio construction and monitoring. He also spent a decade in the leveraged finance unit at GE Capital.

With the asset class arguably playing catch up with other alternative asset classes on the ‘high-profile LP’ front, here was a move that was never going to go unnoticed. Observers will be waiting with anticipation to see how CDPQ shapes its strategy going forward, with Mayans centre-stage.

Fund financier of the year

1. Investec
2. RBS International
3. Macquarie Settlement Solution

It was a year of innovation in fund finance, with the likes of “back-end” and “umbrella” financings making their mark. At the cutting edge was Investec. With 27 professionals spanning offices globally, the fast-growing Investec team had a successful year providing leverage and liquidity to private capital funds.

There were two areas of focus for Investec in 2017, which may have played a big role in winning the support of peers. One was the firm’s creative embedding of derivatives into risk management solutions for funds; the second was helping to provide GPs with solutions around succession planning and diversity.

Asked for his thoughts on what may define the market in the year ahead, Investec global head of fund finance Simon Hamilton says: “The big topics are where we are in the cycle, risk management and protecting value. People are focused on whether companies and their structures can withstand any headwinds.”