Schelcher to deploy €400m in French SMEs – exclusive

Following the award of a €150m mandate from one of France’s largest pension funds, Schelcher Prince has a record amount of dry powder to put to work.

Schelcher Prince Gestion has a record €400 million of dry powder to deploy in French small and medium-sized enterprises over the next two years, but the immediate plans are to consolidate its position before expanding beyond France, the firm’s CEO has told PDI.

Established in 1982, but a relative newcomer to the private debt space, the fixed income specialist held a final close on its second investment vehicle last year after attracting €350 million in capital commitments from institutional investors, the majority of which are based in France.

So far, 40 percent of SP EuroCréances 2016 has been invested, but the firm recently secured a €150 million investment mandate from the Fonds de Réserve pour les Retraites, a pension scheme with more than €37 billion in assets, after an eight-month race. The mandate is targeted at providing financing to French SMEs through private placements.

Sébastien Barbe, chief executive of Schelcher, told PDI that the opportunities to invest in French corporate debt has improved in recent years and investors are starting to see the benefits. “The French market is increasing a lot, but it does not have the same depth as the UK. 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,” he said.

The firm’s predecessor vehicle, SP EuroCréances 2014, raised €170 million and achieved an average dividend of 4.35 percent without leverage. Both vehicles invest in both senior secured bond instruments as well as loans. The second fund’s target internal rate of return of 4-4.5 percent is on track, Barbe said.

Schelcher provides tickets between €5 million and €35 million in companies with a turnover below €1.5 billion and an EBITDA of €3 million. Leverage multiples on individual deals do not exceed 3.5x and covenants included as part of the debt financing are completed on a case-by-case basis. Management fees are 0.72 percent and the firm provides a regular dividend from its portfolio.

French bank Crédit Mutuel Arkéa’s owns an 85 percent stake in the investment firm and seeded both platforms with €80 million investments through its subsidiary Suravenir.

Barbe said the firm is a long way off plans for a third vehicle. “We will potentially start fundraising for a third vehicle in 2018, but the launch depends on when we invest the existing capital and the situation of the market in the future,” he said.

Barbe added that he is open to managing a pan-European strategy, but the near-term objective is to increase its market share within the French market. “You need to be local and if you want to create a European fund you will need to have offices outside of France. The time for us is to consolidate our position in France before thinking about going abroad,” he said.