Pemberton targets £500m for UK-focused fund

The firm is attempting to fill the financing gap to the UK mid-market created by overseas banks retreating from the market, a trend that expected to accelerate following Brexit.

Pemberton Asset Management has launched a direct lending fund targeting investments in the UK mid-market.

The firm is aiming to raise £500 million ($650 million; €579 million) by the second quarter of 2017 and has obtained commitments from insurer Legal & General and another unnamed institutional investor. A first close is expected by the end of the year.

Symon Drake-Brockman, managing director at Pemberton, told PDI that the long-term decline of foreign bank lending into the UK market has opened opportunities for alternative lenders. According to the Bank of the England, approximately £1.6 trillion of lending from overseas banks into the UK market has been withdrawn since 2008.

“UK banks need partners in order to put together the full financing package of companies and they have historically worked with foreign banks to complete these deals. But it’s clear that foreign banks are reducing their exposure to the UK and we and L&G want to be a reliable partner for the banks,” he said.

The UK’s vote to leave the EU is likely to accelerate this trend of foreign banks downsizing and shifting focus back towards their own domestic markets. “Brexit will create more opportunities for us – the UK is one of the leading economies in Europe and has strong bankruptcy and investor protection laws,” Drake-Brockman added.

The fund is sector agnostic and will only target businesses with long-term identifiable cashflows. It also focuses on senior secured loans, although it does have the capacity to complete unitranche financings. It is targeting a net return of 6.5 percent. Ticket sizes will range between £10 million and £25 million and the firm is aiming to complete 30 deals under the portfolio across a three-year investment window.

On Brexit, Drake-Brockman is aware of the increased caution among a number of institutional investors to the UK market, but is resolute that the UK is still an attractive space to invest in. “We’ve spoken to a number of investors that have sterling liabilities and therefore will be looking to invest in the UK. There is a limited amount of fixed-income assets in the UK and investing in private debt is an attractive alternative to gilts, investment grade bonds and high yield at the moment,” he said.

Paul Stanworth, managing director of Legal & General Capital, which acquired a 40 percent stake in Pemberton in 2014, said: “Economic growth in the UK relies upon the success of small and medium-sized businesses, but too often such enterprises are starved of funding. Pemberton has already been helping businesses across Europe and now with our backing in this fund are focused on supporting UK enterprises.”

The next 12 months should prove to be busy for Pemberton, as the firm is planning to launch another debt strategy before the end of the year and a further two in the first quarter of 2017. The firm is also set to reach a final close on the Pemberton Mid-Market European Debt Fund. The fund is operating with a target of €1.25 billion.