Waiting for the cycle to turn

Golding Capital Partners was founded nearly 20 years ago at the turn of the century to serve the needs of smaller and mid-sized institutional investors which wanted to get exposure to the growing alternative assets space. Its limited partner clients primarily consist of mid-sized insurers and pension funds from the DACH region, but also include foundations, cooperatives and savings banks, as well as investors from outside Europe.

Today the firm has a team of more than 80 professionals serving a client base of more than 150 institutional investors with funds of funds, individual alternative investment structures and advisory services. It has assets under management of €7.4 billion, split roughly equally between private debt, private equity and infrastructure.

Golding also has a long history in the private debt space with an initial focus on mezzanine fund investments on behalf of its clients.

The firm has recently hired a new head of private debt, Abhik Das, who joined from BlueBay Asset Management. Das was a principal and later partner within BlueBay’s Private Debt Group for nearly six years, where he was primarily responsible for direct lending opportunities in Germany, Austria and Switzerland.

He believes the coming years will see continued strong interest in private debt from limited partners. However, the possible changing economic environment is also likely to create a more challenging situation, which in turn has to mean ever more diligent manager selection.

“None of the more recent entrants to the European private debt market have witnessed a full credit cycle as yet, so it will be interesting to see how things evolve once the cycle turns,” he explains.

Golding is wary of how crowded the European private debt market has become in recent years. This means a continued focus on the more mature private debt market in North America, as well as a growing interest in more niche strategies such as specialised healthcare debt funds.

The team at Golding is particularly cautious when it comes to newer managers without a track record. Das warns that teams of ex-bankers setting up first-time funds should be approached carefully as the typical “underwrite to distribute” model of banks is very different from the longer-term nature of private debt fund investing. There are considerable differences in investment culture and mindset between a private fund specialist and a seasoned banker, though he stresses each team should be considered on its own merits.

Das also thinks co-investments will be an area of increased focus. Most LPs ask for co-investment opportunities, but often lack the in-house capabilities or manpower to review an opportunity in the required time. At Golding, it is an overriding principle that all senior investment professionals and especially the investment heads have direct investment experience, which means that the firm is a trusted co-investment partner for GPs. This will be an increased focus for Das given his prior experience at BlueBay. It also allows Golding to provide an even more differentiated offering to its clients.

Despite some of the expected difficulties ahead and the knowledge that, at some point, the credit cycle will turn, Das says the prospects for private debt remain good.

“Our client base, on the whole, has a relatively positive outlook on private debt and understands the clear benefits relative to more liquid fixed income opportunities,” he says. “At the same time, they are aware of the worsening terms in the wider debt markets and that some of this deterioration, such as less or no covenants, is creeping into the private debt market.”

Despite these issues, Das says the private debt market has some inherent attractions to LPs over the public debt markets that are unlikely to change. Investors are motivated by the superior returns private debt can offer for similar risk characteristics, but are also seeking diversification, something private debt can offer due to the wide array of different strategies available.

For example, Golding has recently been increasing its exposure to distressed / special situations strategies to approximately a third of its portfolio. This diversification means that investor appetite is unlikely to slow down soon.