Welcome to the second issue of Private Debt Investor.
It’s been a strange month for the lending community, particularly here in the UK, home to PDI HQ. The Bank of England has been busy scare-mongering, singling out over-leveraged private equity-owned companies bought during the boom as being a potential cause of a new financial crisis; several banks have been ordered to raise more capital to match liabilities and guard against future losses; and two state-backed programmes designed to promote lending appear to be foundering.
One feature of the global response to the financial crisis was the disjointed and often contradictory regulatory instruments it spawned. Banks have been told to deleverage, but have then been berated for reining in their lending. It’s a case of damned if you do, and damned if you don’t. Many banks appear not to have satisfactorily worked out a solution to this dilemma.
Hence the bizarre situation whereby a handful of UK banks have been ordered to raise an additional £25 billion ($38 billion; €30 billion) by year end, but have been banned from cutting their loan books to facilitate that process. It’s another symptom of the confused signals being sent by governments and regulators.
Even two schemes in the UK, the Funding for Lending Scheme and the Business Finance Partnership, have come in for criticism. The first is designed to promote lending by offering banks who take part access to cheap capital. The only problem is that few banks or building societies have actually made use of the scheme.
The Business Finance Partnership meanwhile was originally designed to promote growth in the private debt market. However, the first round of funding grants went to established global debt fund managers, not the raft of UK-based start-ups that are struggling to raise capital. Unsurprisingly, the decision has generated a degree of resentment amongst those to miss out. But equally, with public money at stake you cannot really blame the Treasury for putting that capital in apparently safe hands. We examine the situation in detail on page 10.
Another nexus for government and private debt provider is the infrastructure industry. PFI and PPP projects are well-established, but with banks retrenching, a new breed of infrastructure debt providers are springing up. This month, our keynote Capital Talk interview is with one such manager, Allianz Global Investors’ Deborah Zurkow (p.18). We also speak to three other fledgling infrastructure managers about their attempts to raise capital (p.26).
Elsewhere we dissect TPG and Ivanhoé Cambridge’s acquisition of Woolgate Exchange via its distressed debt, examine the funding underpinning the record $28 billion Heinz buyout, and lastly, shine a light on investor attitudes to the asset class of private debt. It serves to illustrate just what a varied, complex and interesting an asset class this is. We invite you to help us shape and define it, and of course we welcome your feedback.