Since its founding in 2013, Pemberton Asset Management has grown to become one of Europe’s biggest private credit houses.
Until recently, it was best known for its direct lending to European mid-market companies, with three funds targeting that strategy. But in 2017, Pemberton began to expand beyond traditional direct lending with the launch of Pemberton Strategic Credit Opportunities Fund I, a vehicle looking to make more opportunistic investments in complex situations that require bespoke financing and in-depth credit assessment. A second fund followed in 2020.
After surviving, even thriving, through the covid-19 pandemic, Pemberton is now looking to accelerate its growth.
So far in 2022, it has announced three brand new strategies it is adding to its stable, accompanied by a string of senior appointments to bring in the specialist knowledge needed to give its LPs greater choice.
To get the lowdown on how this expansion fits into the existing Pemberton offering and its vision for European alternative assets, Private Debt Investor headed to the firm’s London headquarters to speak to co-founder and managing partner Symon Drake-Brockman.
“We believe alternative investments are going to see substantial growth over the next 10 years,” he says. “To stay ahead of this, we want to develop a broad range of products that present LPs with an opportunity to diversify their portfolios.”
While Europe has historically lagged behind the US in adopting alternatives including credit, there are an increasing number of opportunities for alternative investors each year and LPs are reallocating more of their public markets’ investments into private markets, with credit in particular set to benefit.
“While we do see fixed income allocations being shifted into private credit, I think the next few years will see LPs underweight their equity portfolios due to inflation and other headwinds. Other popular asset classes like real estate are also facing headwinds and credit is going to benefit from that,” Drake-Brockman explains.
Other factors which Pemberton sees as being favourable to private credit growth in the coming years include low fixed income yields, challenging equity markets and increased familiarity with the asset class among LPs. The covid-19 crisis has also given GPs the opportunity to show that their strategies can weather an economic crisis, finally providing the full-cycle performance data many LPs needed to give them confidence to make significant commitments to the asset class.
With expectations of increased demand from LPs, Pemberton now believes it has created a strong foundation from which to expand what it does well beyond direct lending.
“Our strategy was to build a strong lending platform in Europe, and we now have that platform. This base has allowed us, in the last couple of years, to offer core strategies that build an attractive investment base for LPs in private credit.”
The firm is now looking at more niche offerings for its LPs across three new strategies: risk sharing, collateralised loan obligations and net asset value-based financing, each of which brings a different risk/return profile.
In February 2022, Olivier Renault joined Pemberton to lead the launch of a new strategy called risk sharing. Renault joined from Citigroup, where he was global co-head of its financial institutions group, a major originator and structurer of bank risk sharing transactions.
The strategy involves investing in junior tranches of loan portfolios originated and serviced by banks, enabling them to free-up lending capacity and regulatory capital. Pemberton says this asset class has been growing significantly in recent years with an estimated 50- 60 deals annually referencing hundreds or even thousands of individual loans.
“Risk sharing fits well with our existing strategies,” says Drake-Brockman. “Fellow co-founder Mark Hickey and I previously did risk sharing trades when we worked at RBS, so we already have a lot of knowledge of how these deals are structured.”
Through this strategy, Pemberton’s LPs will be able to gain exposure to a larger pool of names through acquisitions of tranches within bank portfolios typically rated BBB. While such a move would seem to require a significant expansion of the firm’s credit analysis, Drake-Brockman says that due diligence resourcing is equivalent to its direct lending operation.
“One feature of direct lending is that there is a lot of competition for deals and you don’t win all of them, but you still have to do the due diligence work. With risk sharing, we can do statistical analysis of companies with deep-dive analysis where needed on individual names within the portfolio to help us understand the risk across the whole transaction.”
Following closely on from the launch of its risk sharing strategy, in March, Pemberton announced it was launching a CLO strategy to tap into a market that is now thought to be worth more than €38 billion in Europe.
Rob Reynolds has been hired to lead the development of Pemberton’s CLO platform. He was previously a partner at European CLO specialist Spire Partners and has also held senior positions at 3i Debt Management and Resource Europe Management.
“CLOs is something we had been looking at for three or four years, but you need high-quality professionals to lead that kind of project. When the opportunity came along to add Rob to our team, we took it as he’s well known in the market as someone who is very thoughtful in how he creates his
Getting into the CLO market, he adds, will deliver additional benefits, such as providing liquidity inside its products to enable it to broaden its investor pool into the wealth management space and daily involvement in a tradeable market. With greater inflows of data from a wider range of companies within CLOs, Pemberton will gain a wider view of how different sectors and companies are trading. This should inform the firm’s underwriting across its family of funds.
In April, Pemberton announced the launch of its NAV financing strategy with the hiring of ex-17Capital partner Thomas Doyle. Doyle will lead efforts to provide loans directly to private equity managers secured against their funds.
Drake-Brockman sees NAV finance as a natural extension of what Pemberton already does in direct lending. Instead of financing a single name within a private equity portfolio, the idea is to finance a whole portfolio.
“For private equity managers, NAV finance can enable them to continue investing after their investment period, using the capital for further add-ons rather than selling a business and allowing them to release capital back to their LPs,” he says.
“For us, the underlying risk is the same as direct lending funds, and there are other advantages too. In an NAV finance deal, we will have years of performance data to see how the management team is doing and benefit from greater diversification as we gain exposure to the whole portfolio in a single transaction.”
Not just wealth management
While expanding its range of products and maintaining its specialism in alternative credit has been one of the major driving forces behind Pemberton’s continued expansion in 2022, the firm has been busy elsewhere too.
In March it announced a partnership with financial technology and alternative investment specialist iCapital to widen access to its products to wealth managers and their clients. “We wanted a partner that is a leader in the European marketplace that can work with us and wealth managers, and iCapital was the perfect fit,” says Drake-Brockman.
Pemberton is also continuing to work on expanding its origination network, most recently opening a second office in Munich, led by former Allianz Global Investors director Adrian Grammerstorf. With an existing office in Frankfurt, Pemberton is hoping to capitalise on the rapidly growing appetite for private credit in Germany, which is now vying with France to become the largest alternative debt market in continental Europe.
The addition of the Munich office brings Pemberton’s branch network across Europe to nine offices, with a presence also in the UK, France, the Netherlands, Denmark, Luxembourg, Italy and Spain. The firm believes a local presence is vital to being an effective pan-European alternative lender, by staying close to both its PE partners and its borrowers.
“As leaders in the European debt market, we think we can grow substantially in the coming years,” Drake-Brockman explains. “But we need to grow in a thoughtful way which leverages our strengths and knowledge in the credit space. While some of the very large global managers offer a very broad range of products across debt, equity, real estate and more, we want to be careful not to become too broad. We want to remain a pure play financing house.”
With the global economy entering a new era post-covid, Pemberton is betting big on alternative credit’s growth. Drake-Brockman says he doesn’t focus on assets under management, believing that offering the right products and expertise to LPs will naturally lead to AUM growth. With the firm having achieved so much in H1, observers will be watching how it continues to develop its business.