Investor spotlight: Channelling new opportunities

As Brexit makes investors rethink their allocations to private debt, one beneficiary is France. The growing strength of the country’s private credit market has meant that the depth of opportunities available are increasing and fund managers are enjoying success.

Such is the confidence in the corporate credit market that the €36 billion pension fund Fonds de Réserve pour les Retraites issued a €600 million tender last May for fund managers to put to work in the French private debt market.

Split across two strategies – €300 million in debt acquisition strategies and €300 million in private placement strategies – FRR is keen to work with investment managers that could show a healthy track record and a deep knowledge of French corporates.

After an eight-month race that FRR chief investment officer Salwa Boussoukaya-Nasr describes as “intense”, the pension fund selected four firms to manage separate €150 million mandates.

“In the end it was a beauty contest,” she says. “We looked at financial solidity, operational risk and the experience of the team and their ability to select deals. A good investment process was probably the biggest criteria in the request for proposals.”

It’s easy to say the increasing focus on the French market is linked to Brexit, but the market has been growing in confidence for some time. One firm selected for FRR’s private placement mandate was Schelcher Prince Gestion. Established in 1982, it is a relative newcomer to the private debt market having spent years developing its expertise as a fixed income specialist.

The firm raised €170 million for its SP EuroCréances 2014 platform and doubled that for the successor vehicle. With the additional capital from the FRR mandate, the firm has €400 million of dry powder to deploy.

“While it does not have the same depth as the UK, the French market is increasing a lot,” says Sébastien Barbe, chief executive of Schelcher Prince. “Over the last five years it has changed significantly – investors were initially concerned about the illiquid nature of the asset class, but because of the low yield environment they are increasingly attracted to it.”

Experienced asset managers with a track record in the French market are starting to look at the bigger picture. Tikehau invests across a variety of asset classes, with private credit making up 50 percent of the business. At the beginning of March, the €10 billion asset manager floated on Euronext in a bid to raise awareness among international investors.

Co-founder Mathieu Chabran says that while the move is important to boost the brand name, “performance remains critical and transparency is key”.

FRR’s mandate was a vote of confidence in the French market and fund managers with a history of investing in the country’s SMEs. In a period where many are re-thinking old habits, investors and fund managers may start finding success if they divert their attention to France.

NEW YEAR RESOLUTIONS
January’s €600 million commitments. Each firm will manage €150 million
on behalf of FRR

Acquisition-related debts
financing provided to French SMEs through acquisition of debt securities:
Idinvest Partners
Lyxor International Asset Management

Private placements
financing provided to French SMEs through private placements:
BNP Paribas Asset Management
Schelcher Prince Gestion