The new era of expansionism is here

The allure of Europe for US managers is strong. This message came across loud and clear when researching our soon-to-be published cover story for the July/August issue.

Of course, it’s not a new message. The likes of Ares, Blackstone and Carlyle have been present and active in Europe for many years – the record-breaking €11 billion direct lending fund closed this year by Ares was testament both to a longstanding presence in the region and investors’ belief that the firm has made a success of it.

Nonetheless a new wave of US/Europe strategic partnerships appears to be forming. Since December, four US managers have linked up with European counterparts: Monroe Capital with Bonaccord Capital Management; Bain Capital Specialty Finance with Pantheon; Candriam with Kartesia; and Churchill Asset Management with Tikehau Capital.

Part of this is simply to do with the perceived growth opportunity Europe is believed to represent, compared with a much more mature and competitive US market. However, it also speaks to a general movement towards pan-regional, multi-strategy managers that can do many things under one roof. Our PDI 50 ranking has consistently shown the big are getting bigger – and, as they get bigger, expansion is inevitable.

The global health crisis has favoured consolidation, says John Bohill, a partner and member of the private debt team at StepStone Group. “The groups that had large and diversified portfolios through covid were somewhat insulated from difficulties,” he says. “Smaller firms which had concentrated exposure to more exposed sectors maybe struggled a bit. There was a perception of strength in numbers and that’s attracted capital to the bigger players.”

The pressing question is not whether these firms will expand regionally, but how they will do it. “We definitely think that having devolved decision-making with a senior local team is better,” says Bohill. “You might have a European team originating transactions and they get on the phone every week recommending deals to a New York-based investment committee who don’t really have a connection with what’s happening on the ground, but the local team can’t decide for themselves. That’s not a sustainable situation.”

There is also a certain degree of scepticism to overcome from investors about the motivations of fund manager expansion. Is it little more than an empire-building exercise that will end up enriching the GP but not necessarily the LP? Managers undertaking such moves need to have well-rehearsed arguments as to why they are necessary.

Write to the author at andy.t@peimedia.com