Pollen Street listing reveals deeper push into credit

Pollen Street Capital is the latest private equity firm set to become a public company via a merger with listed investment trust Honeycomb, as part of a strategic plan to build a larger credit platform.

The move is a progression to build Pollen Street into a recognised platform, managing partner Lindsey McMurray told affiliate title Private Equity International.

“We’re not fundamentally changing it,” McMurray said. “We’ve come from being a small, 10-person team, and we’ve steadily built that up with our relationships with LPs. What we’ve been trying to do over the years is to get that balance of what we do in our portfolio companies – that balance of very strong governance and an institutional setup, but also being nimble and a specialist in our space.”

The transaction, which is expected to close in the second quarter of 2022, would see credit investor Honeycomb acquire the entire issued share capital of Pollen Street at a value of about £285 million ($386 million; €341 million). The combined group, which will be listed on the London Stock Exchange, will continue to invest predominantly in high-quality, diversified and low-risk asset-based direct lending investments, according to a statement.

Honeycomb, a closed-ended investment trust providing investors with access to asset-backed lending opportunities, has been externally managed by a member of the Pollen Street group since 2016.

McMurray, who will lead the combined entity as chief executive, noted Pollen Street was not initially looking for a buyer for the business. The strategic rationale for the takeover is to “accelerate the firm’s strategy, not to change it or step out of its zone”, she noted.

“We’re not trying to become a mega-fund. We’re not trying to be all things to all people,” McMurray said.

Pollen Street’s assets under management reached £3 billion as of end-December, driven in part by the £700 million final close of its fourth flagship private equity fund, a further £321 million via a dedicated top-up fund and co-investments, and its £300 million third credit fund.

The firm expects assets to grow to between £4 billion and £5 billion in the near-term, according to the statement. Underpinning that ambition is a £1 billion target for its fifth offering, which it expects to launch by the end of this year, as well as fund launches in strategies including credit opportunities and US real estate debt, McMurray said.

She added that the strategic use of Honeycomb’s balance sheet would give the firm firepower to back investments across the capital structure, as well as to have more skin in the game in its private equity funds.

In mid-market private equity, Pollen Street specialises in the financial services sector and operates across six sub-segments of wealth, payments, technology, lending, insurance and services. Its senior asset-backed credit business, meanwhile, focuses on SME lending, direct lending, real estate lending and sustainability financing.

As part of the transaction, Honeycomb is acquiring 25 percent of carried interest in its active PE and credit flagship funds and SMAs, as well as 25 percent in all future carried interest in funds established by Pollen Street Capital.

Existing shareholders, such as GP seeding platform Capital Constellation, will be entitled to shares in the new group.

More private equity firms have gone the public route in the past year as part of their growth ambitions. Buyout firm TPG made its public trading debut in January, boosting its valuation to about $10 billion. Bridgepoint, owner of Private Debt Investor publisher PEI Media, also joined private equity’s listed elite mid-last year.