PDI Annual Awards 2016: Europe winners

1. EQT Credit
2. Ares Management ?
3. Alcentra

“EQT Credit has become an integrated capital provider for sponsors and corporates across the credit risk spectrum,” says Paul Johnson, partner at EQT Credit. He’s referring to the final closing in April of the EQT Mid-Market Credit fund – focused on answering the increasing demand for long-term flexible debt capital from mid-sized European businesses.

The Mid-Market Credit strategy is part of a three-pronged investment platform, which includes the Credit Opportunities funds – focused on operationally sound businesses challenged by excess leverage or the need for additional capital – and the rapidly-growing Senior Debt programme. 

Andrew Konopelski, partner and head of EQT Credit, believes that having three well-established strategies provides the firm with several competitive advantages, including the ability to provide flexible financing solutions across the capital structure and maintaining “a strong relative value mindset, particularly in the current environment with increasing signs of risk-amnesia”.?

Konopelski also believes part of the secret behind the successful EQT Credit platform is the support from EQT’s “local-with-locals” presence, with 200 investment advisory professionals across 14 offices, plus the knowledge and operational experience of EQT’s proprietary 250-person industrial advisor network, assisting in selecting the strongest credits and avoiding losses due to enhanced insight into companies.

1. Hayfin Capital Management ?
2. Intermediate Capital Group ?
3. Alcentra ?

As concerns continued to grow about the overcrowding of the senior debt space last year, the team at Hayfin led by chief executive Tim Flynn were able to shine the most brightly. ?The firm manages a pan-European strategy, operating from offices in some of the key European capitals – London, Amsterdam, Frankfurt and Paris – and has in recent years expanded its focus into more niche sector-specific strategies such as healthcare and shipping. Throughout 2016, the firm was on the road marketing its second direct lending fund with the aim of raising more than €2 billion in capital commitments – an ambitious target for the European fund.?The firm’s recent successes attracted attention across the Atlantic. British Columbia Investment Management, one of the largest institutional investors in Canada, took a majority stake in the firm. ?

1. Park Square Capital ?
2. Intermediate Capital Group ?
3. GSO Capital Partners ??

When London-based fund manager Park Square Capital announced it had closed its Park Square Capital Partners III subordinated debt fund on €1.2 billion in April, beating a €1 billion target, it came in the early stages of what turned out to be a challenging year for Europe’s junior lenders. After all, there was a risk of re-pricing taking place as a result of fears around China growth and Brexit concerns offset by a relative dearth in the supply of buyout deals.

“It encouraged us to further invest in our coverage teams,” reflects Park Square managing partner and co-founder Robin Doumar.?

He adds that, in the current climate, it’s generally harder to raise funds for junior than senior debt. This is because the former typically comes from the alternative assets allocation and has to compete with private equity returns, whereas the latter competes with fixed income, which is offering very little value.

One key to raising money successfully, says Michael Small, a partner at Park Square, is the knowledge of market conditions that comes with experience. “You need to know when to lean in and push hard and when to take your foot off the gas,” he says.

1. Kartesia ?
2. Beechbrook Capital ?
3. Idinvest

A pan-European fund manager with offices in London, Brussels and Luxembourg, Kartesia enjoyed a busy 2016 with €250 million invested during the year – allowing it to fully put to work the €507 million KCO III fund it had closed the previous year. ?

With around €1 billion in total under management, Kartesia has steadily ramped up its investment pace each year since 2010, when it deployed around €100 million. As well as its more orthodox primary and secondary investments (mainly in senior debt), the firm was also a supporter of CLO funds in the early part of 2016, helping to prop up a market suffering a period of illiquidity.

In terms of deals, Kartesia managing partner Jaime Prieto highlights ProFagus, a German supplier of charcoal for barbeques. As well as providing new capital, the deal enabled existing debt to be refinanced, allowing one of the original shareholders to exit. Such a strategy can prove useful for tail-end private equity funds, says Prieto, where more time is needed to realise value. ?

The firm also spread its wings, opening a new representative office in Paris ahead of new launches in Frankfurt and Madrid this year. ?

1. LCM Partners ?
2. CVC Credit Partners ?
3. Apollo Global Management??

As far as LCM Partners CEO Paul Burdell is concerned, the firm has benefitted from being a mixture of the familiar and the unfamiliar. ?Most limited partners are now well used to receiving visits from large distressed investment firms targeting corporates – and many of them already have their large, corporate-focused distressed exposure full to bursting. ?As a result, there’s simply no room in the allocation for other, similar offerings.

“You have to be a departure and make it clear that you’re not competing with the existing big players in the market,” insists Burdell. ?

While talking some of the distressed language that they understand, LCM has managed to get the full attention of LPs by focusing on a niche area of distressed which targets relatively small-ticket investments (€5 million-€75 million) in the retail, consumer and SME space. ?It no doubt helps that the strategy has delivered a 14.9 percent gross unleveraged IRR since inception in 1999.

1. Spire Partners ?
2. CVC Credit Partners ?
3. GSO Capital Partners ??

As with any good business opportunity, Spire Partners identified a gap in the market. It was early 2014 and investors in the CLO market were, according to Spire partner Oliver Drummond Smith, “in search of new managers”. ?At the time, only a handful of big-name CLO managers existed in Europe and they dominated the majority of syndicates across the European institutional loan market.

Fellow partner Phil Bennett-Britton – who, together with Drummond Smith, had been instrumental in the creation of 3i Debt Management – believed there were various factors that collectively would support a new entrant in the market. ?Firstly, it could offer investors manager diversity given a lack of experienced and credible newcomers. Secondly, it could provide additional pools of liquidity to arranging banks and financial sponsors.

In 2015, Spire issued its first CLO in a €309 million deal. Last year, strong demand led to a €360 million second CLO while a warehousing line was opened for number three (expected to come to market in 2017). ?Fair to conclude that Spire has by now cast off its ‘new manager’ tag, become a repeat issuer and established itself in a market that was far from easy to penetrate.

1. Macquarie Infrastructure Debt Investment Solutions
2. AXA IM – Real Assets
3. UBS Asset Management ??

Andrew Robertson, co-head of Macquarie Infrastructure Debt Investment Solutions, describes 2016 as “a year when infrastructure debt definitely crashed through into the mainstream”.? MIDIS was a leading beneficiary of this as it hoovered up more than $2 billion of new investor commitments during the 12 months. Fellow co-head James Wilson says greater clarity around Solvency II requirements has helped insurers commit to the asset class. “Many have run it through their internal models and see that it offers diversification and has a good history of recoveries,” he adds. ?

The two men also point out that infrastructure debt looks attractive versus corporate bonds and newer players have been able to take advantage of the banks either shortening tenors or pulling out of the market altogether. All this adds up to some highly favourable tailwinds. ?

Of course, to merit an award, voters are looking for innovation by firms in addition to benefitting from industry trends. MIDIS had plenty of examples in 2016, including backing a first-of-its-kind CPI-linked ECA financing for the UK’s Teesside Renewable Energy Plant and a growing strategic focus on sub-investment grade debt. ?

1. Venn Partners
2. AXA IM – Real Assets ?
3= ICG-Longbow & Omni Partners

Last year started and finished with notable successes at real estate debt lender Venn Partners. The firm launched its Venn Hypotheken platform, a Dutch mortgage lending business, to take advantage of the increasing opportunities in the low-risk market as banks continue to reduce their activities.?And towards the end, the firm issued two bonds to help channel institutional capital to the Private Rented Sector, a £3.5 billion ($4.4 billion; €4.1 billion) UK government scheme intended to tackle the increasing demand for rented properties.

Between these achievements, Venn continued to market its debut commercial real estate debt fund and deploy capital. A second close was held after raising £185 million by April and a final close of £250 million is expected this year.

?The European real estate debt market reached a new level of maturity in 2016. Where once the asset class may have been considered niche, Paul House, managing partner at Venn, said it is clear that the market is “becoming more mainstream”.?

1. Envision Pharma (Partners Group)?
2. Reichhold/Polynt (GSO Capital Partners)
3. Mater Private Hospital (Macquarie)

Partners Group is the winner of the European award after its backing of the management buyout of Envision Pharma with a senior term loan. The debt package was part of Ardian and GHO Capital’s support of the MBO of the communications firm established in 2001, which was previously acquired by North American private equity firm Halifax Group. ?Reports at the time said the company was valued between £200 million and £250 million. Partners is expected to generate more than 7 percent on the loan.

Envision specialises in providing communication technology to pharmaceutical and biotech companies. With offices in the UK, US, Japan and Australia, the company has a global footprint. Founders Brian Hepburn and Greg Caswill will maintain their respective roles of chief executive and chairman of the company.?

Healthcare attracted more attention from private debt funds in 2016 and looks set to continue to do so. Christopher Bone, managing director at Partners, told PDI recently that sectors such as pharmaceuticals are attractive to debt lenders due to continued structural growth.

1. LCM Partners ?
2. Pemberton
3. Park Square Capital

When it comes to fundraising, the numbers often tell the story rather well. Having set out with a target of €1 billion, London-based fund manager LCM Partners’ Credit Opportunities III closed on just over €2 billion at the end of October. Taking into account the level of investor interest, it is understood the fundraising could have reached around €2.7 billion had the time horizon been extended. ?

“I think doing the preparation before you meet the LPs is really important,” says LCM CEO Paul Burdell in a nod to the strategy’s placement agents Citi and Park Hill. “There was a lot of work that went on behind the scenes that we didn’t even see.”

The fundraising included an €865.5 million commingled fund plus a number of managed accounts, with $350 million being managed on behalf of Arizona State Retirement System. “We have a fantastic core of LPs who brought some very difficult questions to the table,” says Burdell.

The LCM team had previously raised two funds worth a combined €420 million before it went independent. Not bad for a firm that started life with a small team in a room above a curry house. ??

1. PSP Investments?
2. Royal Mail Pension Plan ?
3. Strathclyde Pension Fund ?

As Europe continues to develop an increasingly sophisticated private debt market, it is no surprise that some of the largest pension funds on the other side of Atlantic are keen to increase their exposure.?

PDI’s Investor of the year award has gone to PSP Investments in recognition of this trend. The Canadian pension fund with C$116.8 billion ($88 billion; €84 billion) of assets under management established its private debt investment strategy at the end of 2015. The objective: to deploy C$5 billion in private debt strategies across the world.

The strategy has focused on funds closer to home – investing C$2.4 billion across 20 North American strategies. The appointment of Oliver Duff in September was intended to add a European flavour to the portfolio. Duff previously headed HSBC’s European capital financing team and one of his first moves was to place €500 million with newly established AlbaCore.

It’s a vote of confidence in the debut fund and the broader European private debt market and amounted to one of the largest investments in a fund completed last year. And depending on how things develop, there is the potential that PSP may increase that allocation.

1. Macquarie?
2. Investec Specialist Bank
3. Lloyds Bank

A number of leading banks provide financing to private debt firms, but few venture into the territory of backing fintech businesses. Last year, Macquarie took that step into a still-nascent market by backing UK property lender LendInvest with a £40 million ($50 million; €47 million) warehouse facility. Under the terms of the agreement, LendInvest can use the capital to provide bridging and buy-to-let loans in the UK property market. ?It’s a vote of confidence for a market that last year reached a new level of sophistication, with Macquarie an early mover into the space. ?

“We’re introducing investors to a new asset class and in the next five years aim to diversify our capital base and attract more institutional capital,” says Gianfranco Simionato, head of fixed income EMEA at Macquarie.?“It is a space that high street banks find difficult to compete in. We look to partner with a team with the right fundamentals.” ??

1. Paul Hastings
2. Dechert ?
3. Ropes & Gray

One of the deals that caught PDI’s eye last year was the backing of private equity firm Apax’s acquisition of satellite communication company Marlink. The debt financing jointly provided by Ares and Tikehau was €270 million, one of the largest in the European market in 2016, and which spanned a number of jurisdictions. ?The team at Paul Hastings played a central role in structuring the deal.

The firm also has a roster of clients that are household names in the private debt industry, including ICG, Ares and Pemberton, which have all collected PDI awards in recent years.?The firm focuses on both structuring individual deals and fund formation within one integrated global practice – a service that allows it to claim to be a one-stop shop for private debt funds. Last year alone, the firm structured €5 billion in fund financing facilities in France and, with offices in both Europe and the US, it is already playing a key role in the increasing traffic between the regions.

1. Citi
2. Park Hill
3. First Avenue ?

?Placement agents have played an important role in the development of the European private debt market following the global financial crisis. Investors, initially reticent about investing in the asset class, are expanding their allocations as enthusiasm continues to grow. ?Citi’s International Fund Distribution effort served as lead arranger on UK asset manager Pemberton’s debut European mid-market debt fund, raising half of the €1.2 billion pledged to the vehicle. The fund reached a final close in October.

Citi also worked with LCM Partners on its third credit opportunities fund, assisting the firm in raising €865 million for a commingled fund. ?In addition to working with both the experienced and relatively new players in the market, Citi also teamed up with a blue-chip infrastructure debt fund manager, raising more than $700 million for the strategy, which to many is still seen as niche area of investment.

“As the private debt space evolves, we have seen how both asset managers and investors have transitioned from the more plan vanilla type of exposure towards the more sophisticated and niche type exposure,” says Antoine Josserand, Citi's head of international fund distribution in Europe. “We can only expect investors' interest in this second wave of private debt assets to increase going forward.”