Thanks for joining us for Real Deals with Private Debt
Roundtable. I'm reporter Simon Thompson.
As capital markets emerge from a disruptive 2020, private debt is
expected to play an increasingly influential role in meeting deal
and corporate funding requirements.
In this roundtable, we consider the growth of private debt,
what's driving it and what it means for lenders, borrowers and
financial sponsors. We have a strong and balanced
lined up for today's discussion. Joining us on our roundtable is
Jordan Rothberg, MD at Blue River Partners, Andrea Fernandez
in European Credit and Reach Management, Teber Verba,
Director at Astor and Martin Leherz, MD and Head of Global
Capital Markets at Morgan Stanley.
Thanks for joining us. Thanks.
For having us, no worries. So just to set off a bit of info
to set the time for the discussion.
According to data from frequent private debt is expected to show
an annual growth rate of 11.4% to reach 1.46 trillion U.S.
dollars by 2025. This is coming as investors
continue to search for yields and attractive risk adjusted
returns in a current low interest rate environment.
So John, we'll start off with you from a P perspective.
Why are we seeing increased allocations to private debt?
So from a fund administration perspective, I'd say it's been
probably the most sales calls I've been taking on a day-to-day
out basis. Private debt is just starting to
rip in the market yet again. You know from a fund
administration perspective, we tend to see the cycles of debt,
real estate, venture capital, private equity kind of flow in,
flow out and I think people are really trying to take advantage
of the market specifically. It's an unfortunate time that
no, let me rephrase that it it they're taking.
Advantage of an unfortunate time that is COVID in order to take
advantage of it for the market for their investors.
And I think that's one of the main drivers as to why the debt
market is just thriving. Interesting, Andrew, do you want
to kind of pick up from there? What are you seeing in the
market? What's driving private debt?
What kind of growth, What does it look like on your end?
So I think the growth has come from 8 different angles.
I think well you have bank retrenchments just to set the
stage and you have private. Capital really feeling that boy,
but I think one of the reasons why L P's like the asset class
is because it delivers a pretty consistent high yield and
because he has an illiquidity premium and it has a low
correlation to fixed income and global equity markets.
We saw that last year, you know Asset.
Are floating weight in nature and therefore there's less
sensitivity. I'm sorry, there's less interest
rate sensitivity. Their returns are current and
contractual in nature. You have less market volatility.
The protections tend to be stronger.
But I do think that manager selection is key.
I think that every strategy yields the same results.
For us it carries. In the sole lender in top
performing companies with strong governance and controls have
proven to be defensive. We've been able to to really
work with our sponsors to protect our investors capitals
and and replies risk in the capital structures were
appropriate. Interesting.
Tebo, could you kind of speak to some of the strategic drivers
behind LP interest and also where their return expectations
sit? I'm sorry that that Question
Time was pardon me, I'm not sure.
If you could. Kind of talk about the strategic
drivers behind LP interest and also their return expectations.
So I think the return expectations definitely varied
with the risk return of the asset class.
In general, I think people at the asset level expect high
teens, low double digit I Rs. I guess the strategic drivers
again I think if you compare it with other asset class, you know
within private debt, you know the mezzanine market continues
to shrink in Europe given the strength of the high yield
market at the at the large end of the market for the small end
of the market you have the unit tranche that really replace that
asset class. You have special seats, distress
strategies that really offer a different risk return profile.
In many ways are more keen to a private equity risk and I think
one of the the reasons why investors like to partner with
us in direct lending is because we operating all weather
strategy that delivers strong but also consistent basically
just the returns I'll be probably lower than for example
a special seats distress strategy particularly at some
points of the economic cycles. But if I look at.
Our global direct lending portfolios, we saw very modest
NAV movement. There was really not that much
more to market. And if I look back, we've
delivered current yield throughout all of our capital
polls over the pandemic. So I think that's one of the
reasons why Lps really like this asset class.
I think that would drive continued growth.
I'm moving to you. I wanted to kind of get a sense
how has COVID changed the relative attractiveness of banks
indicated debt instruments as opposed to private debt?
I mean the key differentiators between these two instruments as
Andrea and Martin will know definitely is probably the
covenants which is one of the key differentiators and.
And most of the product that at least in Europe it's moving
ahead in the into the US but had had a covenant, a covenant which
indeed has has a lot of importance when you are
discussing a, I mean a company in the COVID environment, a city
called a retail business for example.
So that's the key differentiators between the two
as a class meaning that in such an environment having a COB
light instrument, So, so no maintenance covenants is is
pretty key and very supportive as well.
Now there's, there's, there's all the factors of usually to to
take into account. Be above and beyond the simple
documentations because you you may have stronger longterm
relationship with. With the direct lending side of
it, when you have, when you're facing 1-2 or three lenders
maximum compared to the syndicated market where you are
most of the time and marketing will correct me, but probably
facing at least 25, it's not 30 different investors.
So obviously you don't have the same relationships and you may
have different views on each of these as a class.
Interesting. So in the same name, Martin, if
you could kind of speak to that, but also how private debt
managers have fared through this crisis and to respect them
managing their own portfolios. Yeah.
In terms of how how private debt managers have fared in this
crisis, I probably defer to Andrea.
But I mean in terms of the different basis the that there's
the key differentiator, right. I think the other differentiator
that I would highlight probably is that it's the yield point.
It depends on where you are exactly in the cycle, where the
market is at that point in time. And clearly we've seen some
volatility over the course of the last 12 months in
particular, right. I think the syndicated loan
market and the high yield market was for all intents and purposes
shot for a period of time over the course of Q2 last year, came
back really, really strongly, in particular post the US election
results in, in Q3 and Q4. And at this stage is, you know,
really, really going very, very strongly at this stage.
And I think the the yield differential is, is clearly
there, right. Andrea mentioned before what the
expectations were on the private debt side.
I think in the syndicated loan market, it is, it is a market
with let's call it a significant number of players, a significant
amount of pressure to deploy capital.
And the result I think the, the price that you would see in this
market also tends to be a little bit lower.
It is also not as much of A bespoke instrument.
To a certain extent it's a more standardized documentation as
well. So there's always pros and cons,
but I think that would be the other differences worth raising.
Interesting. So John, I just kind of wanted
to back to you, you mentioned that you're taking you know
increasing number of calls, you're getting letter inquiries.
Do you feel like the market can continue to sustain same level
of growth and new entrance that it has done you know maybe just
since 2008 and the financial crisis?
I mean is there, has there been a second kind of wind, what's
the kind of state of AS at the moment?
Yeah. No, I definitely think in the in
the states the wind is was blowing strong in the the
private debt and credit markets right now I I I definitely say
that it's it's what we're we're seeing the most that's up
ticking and I think it's just because investors are, it's a
bit more way for their investors to secure their money and
receive better returns over a long period of time.
You know whereas over the private equity side when you're
just doing shared equity, there's the risk return ratio
whether or not the deal is going to hit or not and you don't know
where that's going to go. So I think.
I think there's the sales are strong for what's going on with
private debt right now and I think it'll continue to grow
over the next couple years, Interesting.
So before we move on to certain areas where there is growth and
kind of different debt products and solutions, Andrew, can you
maybe just give us a sense of how that managers have aired
through the crisis in respect to managing their existing
portfolios? I think in general the asset
class has whether they're storm well, part of it is because a
lot of the managers had underlying exposure to strong
sectors such as healthcare and telecom that have feathered the
have weathered the storm relatively well, but we also saw
the benefits of credit selection and and strong underwriting.
I think the, the one aspect that the crisis highlighted was the
benefits of scale not just of a UN but also of team and
infrastructure. So access to deep sources of
capital and in resources where very important for direct
lenders to to manage 2020. So I think what what you'll see
is that you'll continue to see growth in the asset class
because the banks continue to retrench in the middle market.
And there's a void there. But I think LPS will start
supporting a core group of managers and you'll see less
backing for new entrance for indirect lending, state of
market consolidation basically there.
Interesting. I wanna defer back to you.
Obviously there's we all agree there's kind of a fair bit of
growth and momentum there. Where are the specific areas
where we feel like there's going to be major attention from
investors and also in terms of how pays and investors and also
just demand from borrowers as well?
What's driving the growth in Direct landing itself?
I think if you look at the UK, it's probably the most mature
market, but if you sort of go throughout Europe, there's
markets where. Banks continue to dominate a
large share of the market, so such as like the Nordics or
Benelux. So I think you'll see growth in
those markets in Continental Europe.
The other trend that we've been seeing in areas is really the
convergence of the private and the public markets.
We do have the the, the capital base to be relevant for larger
borrowers. Now you know the cap, the
capital markets are very competitive and borrowers can
access pretty cheap cost of borrowing.
So it's not for every company, but we've seen a lot of
situations where large companies decide to pay a premium because
they want the confidentiality, they want the certainty of
execution, they want to know who their counterparty is, they want
to have ability to to grow through follow on capital.
And so I think that also is going to probably drive a lot of
the growth at least in the near to medium term interesting.
So I just kind of want to get a broader sense where do we feel
like banks are going to more inclined to retrench?
Also there's been previous retrenchments from the market
that have created open, open areas for private come in and
kind of dominate. Where do we feel like is that
happening again? And where's that opportunity?
Where's that window? Shall I take that one?
Yeah, that might be. So in terms of banks
retrenching, I guess what we saw in 2008 and 2009 is that you, I
think the market observed that the European banks in particular
were playing across the globe across all sorts of geographies
and I think what we saw thereafter.
Is the European banking universe retrenching to their home
markets in particular? That theme continues if you
like. I mean the Germans are very,
very strong in in the dark region but operate much less
than they used to do in the UK or France or elsewhere, albeit
with with with certain exceptions.
But in terms of of future retrenching, I think it comes
back to. You know, I think banks just
have a certain criteria and a lending policy that is hard to
adjust too rapidly, too quickly. And so you know, I think when
there are you know macro shocks in the environment, in fact you
know obviously as we've seen in the last 12 months, I think it
is much easier for the private debt community to adjust to that
environment, you know credits. Which perhaps in the near term
don't fit the traditional sort of lending criteria that a
commercial bank may have, but equally is probably a very
viable business. And I think if you're in the
private debt space, you can probably look through cash flow
limitations for a couple of years, create an instrument
which is bespoke and catered for that particular situation.
And again I think that's easier to do in the private debt
community as opposed to in the regular way banking community.
So you could argue that arguably.
In the more volatile industries or the more impacted industries
by COVID that the banks will struggle a little bit more
perhaps than than the private debt community.
Equally, I would add that the banking community is clearly
been given the mandate by let's call it society, but also
regulators and central banks to ensure that capital flows
continue, right, that liquidity remains in the system and that
is you know, ever present so. I think a retrenching as such
isn't there. But as I said, I think there are
some areas where banks will struggle more than the private
debt community. Interesting.
I think I can add as to how the banks will continue to get
exposure to that type of risk. I think doing that direct middle
market lending for the challenges that Martin just
outlined will continue to. Yeah, will continue to drive
retrenchment, but I think the banks continue to want to have
that risk. So a way that we partner with
the banks is through asset back on level leverage.
So they're getting exposure to the underlying companies, but
they're getting a better regulatory treatment because
they're investing in a pool of assets rather than that single
company. We also sometimes partners with
banks on 1st Outlast out pieces where they take a very small
super senior term loan at the top of the capital structure
which has limited risk for them and at the same time dilutes the
cost of borrowing to our companies.
Interesting. Tim, I'm gonna get a sense,
where are the real opportunities in the current state of the
market and kind of downsides and risks exist for where you sit in
the market and kind of your your role in the market?
At the moment there's probably, I mean there's there's limited
downside and a lot of opportunities could streaming
from as we've been discussing indeed this newer class
increasingly finishing the deliberate finance markets.
So the the opportunity is really to to to to benefit from a very
attractive unit trans terms and have some complete and test put
some completion as well to the more capital market exposure as
well. So that's probably the the the
the real benefits of the moment. I can see nevertheless that in
the smaller credit, the in the smaller size financing maybe the
market which was. Still a capital market in the
including two hundred maybe 250 million term loan is now kind of
a bit more and more difficult to access.
I I feel that Martin will correct me maybe given the
strength of the of the unit transit alternatives in in in
this specific market. So there's there's a market
whereby you you now have a more difficult alternative, more
difficult choice than before, which is this exact middle
market side. And John, you know obviously
like tethering off what it was kind of said, how long will this
market be in this state We have major growth and opportunity for
you know your stakeholders like how long will it stabilize and
kind of I guess normalize, how long is this going to be kind of
in this position for growth? Yes, I'll I'll defer to the
Beaver and Andrew on that just because they're, they're sitting
on that side of the world I think.
The, the one thing at one point I want to bring up is that you
know for those limited partners that are investing in these
direct funds, it's first come to the market and and they're able
to deploy the capital very quickly and they're able to get
in on an expedited basis. And I think that's where you
know, coming out of 2020, we're able to, you know, rip a bit
more at least in the states where we're able to get in very
quickly to these different positions and be able to grow
the funds accordingly. Andrew, do you want to pick up
on that? How long is this opportunity
have like obviously there's a massive opportunity in the
moment. How long, how?
How far? How much runway does it have
before it maybe stabilizes and normalizes a bit?
Look, I think it's, it's the $1,000,000 question.
We don't know. I think what we know is that the
UK is relatively matured. As I mentioned, we don't think
that the banks are going to exit completely.
Like they did in the US we also know that there's certain
geographies that are picking up and a lot of sponsors in those
geographies are realizing that private debt is a very useful
and friendly product. So that will continue to drive
growth and and you know, as I said, the convergence between
the liquid and the private markets, it's another Ave. of
growth, but I think it's hard at this stage.
To kind of have an outlook of how many years of growth we're
looking for, we're looking at. But I think what's interesting
is that the funds and I don't speak on anyone's behalf here,
but I think that the fund and the fund managers are really
starting to pivot and start to become a bit more strategic as
Andrew is implying, right. So maybe taking a direct lending
approach and then bringing in a banking platform as well to
double down almost it's able to. Get a bigger piece of the pie.
But also, you know, they've been doing it one way for so long,
you have to pivot a little bit as and and adjust rather as as
time progresses. Would you say that in in that
main private debtors in some extent going head to head with
banks or is it they kind of forming a function that they're
moving away from what haven't done at all I?
Think very strategic fund managers are going head to head
with banks. I think it just depends on the
size of the fund and the size of.
The investment class that they're looking for right, if
it's if it's a billion dollar plus fund, I would imagine
they're going against the big banks and and that their billion
dollar plus funds they are going against the big banks.
Whereas if it's more the the lower middle market side of the
world, they might have the the direct lending market is is
probably quicker to get in than the big bank just cuz of the,
I'm gonna guess red tape that there might be at the bank side
as opposed to the direct lending side.
Certainly cases, but one abroad? Maybe it's one for you might on
a more broader scale. Is there sort of a market split
with banks focusing on specific areas and then private debt
funds maybe looking to kind of consolidate and dominate others?
I wouldn't, I wouldn't say there's a split per se, but
there is, Tebow mentioned it. There's a certain focus that the
respective markets have, right. So first of all, size, the
syndicated loan market isn't necessarily restricted to
transactions of 250 or so or larger.
Without any maintenance covenants that is typically the
domain of transactions which are in that size or bigger, right
250 plus. So you know that is that is you
know let's call it some way of defining the market and and if
you're lower than that typically you will require a covenant that
is either a commercial banking product or it is something that
can go or would go perhaps to the private debt community.
Right. So there are there are certain
sort of features of the market, right, which you which you
struggle to get away from. And as I said before I think
that that the broader syndicated loan market is also a little bit
more standardized if you like. You know there are lots of sort
of unique features that can be add from transaction to
transaction and in the documentation.
But for example, take currency right.
The market is dominated by it being euro denominated to a
certain extent. Also sterling, but to.
A lesser degree since 2016 given related to the Brexit vote and
now perhaps it's recovering again, but still it is somewhat
euro driven. So for example, if we had an
issuer or sponsor looking for a a regional currency, take one of
the Nordic currencies for example, it becomes more
difficult for the broader syndicated loan market to
compete with that, that being institutional market if you're
looking for a covenant night transaction.
If you want a covenanted child, I.
Think we're, we're a technical colleague, Martin there.
Thank you. Martin, I just want to defer to
you again. Is there any kind of particular
providers or strategies that you are looking to back or that are
concerned or of interest at you guys at the moment when you're
making decisions about who you're investing in?
If so to refer to questions, if we are using one financing
alternative versus the other to looking at the banking
alternative that is financing. I think when when looking at
financing is, I mean as Martin defined it's, it's there's
several questions to look at it. First, it's a question of size.
Because obviously below certain size the the, not the, the
capital markets indicated markets will not be available
for search for anything above and beyond this size.
I think it's a matter of looking at the company and the quality
of the company, acknowledging that as Martin was saying, the
capital market is relatively standardized regulate.
With with the regular base of investors which are probably not
going to look at the most most strange or specific situations
which a private lenders maybe may have the capacity to do so.
Because your private lender will have a portfolio of of loan
which may be smaller. So it'll have more time to
indicate to such such investments compared to the the
capital market side of it. So I think it's a question of
size, question of quality of the assets, question of speed as
well, which is obviously offered by the unit trench or direct
lending side of it. And last but not least, the
question of complexity, complexity of the management,
ability to run a syndication and rating process and the like.
Interesting. So obviously we've talked quite
a bit of different should thanks to the market, the banks versus
private debt lenders. Andrew, could you kind of talk
about is there any kind of opportunity or many
opportunities for complementary funding between banks and
private debt lenders in terms of working together maybe taking
different sections of facilities to you know for the best
solution for the borrowers basically.
I mean as I mentioned that we partner with banks and I think
banks are here to stay. We partner through them through
fund level leverage through first outlast out positions in
syndicated, in the syndicated markets.
And we we have backed for example anchors and transactions
in the in the first lien market. We have provided second lien
options behind a first lien term loan that it's that has been
syndicated in the capital markets.
So there's a lot of ways that we have worked together with banks
and I think that partnership will continue in the future.
Interesting. So I want to kind of make
another view on the market, Jordan, more in the US.
The private debt market in the US has probably has historically
at least been a bit more progressed.
Could you kind of just a sense of maybe some of the differences
you see or what you see in the US that's perhaps coming on the
horizon for us in the UK and Mainland Europe?
Look, I'm not going to lie from like a direct investing side
that I would defer to the other experts on the panel considering
I I sit behind the funds not in front of them getting out there
from an investing perspective. I think one thing that that is
probably the biggest hot topic button in the United States and
and how it can be factored into your fund especially from a
fundraising perspective would be ESG and how that factors in to
your fund and and what implications your investors
might. Want to step into from a risk
profile perspective to make sure that we're we're factoring that
in when investing in the underlying entities, but I would
obviously defer to the esteemed colleagues on the call to see
how the investment side is going from the US into the UK and
abroad and. Did you want to pick that up?
Yeah, sorry, I thought she'd go ahead and.
Yeah. So just in terms of in terms of
investment themes, I mean Jordan mentioned ESG.
It's a big topic in any market I would say at this stage, right.
It's been obviously something that's arguably been in the
market for a long, long period of time, but it is, it is
clearly you know relevant as we encounter investors in our
transactions which we bring to market.
You know I think the on the equity side people will confirm
as well. It is absolutely paramount on
the fundraising side of the private equity community.
It is literally a an all-encompassing aspect of the
finance world at this stage, right.
So that is that is certainly a a big theme and how that
translates into transactions. I guess we will see over the
next coming months. You know we've already seen
certain margin ratchets being introduced into transactions
linked to certain key indicators being met and thresholds being
met. So I think that's a that's a
very live and real time evolving situation.
I would say that came a little bit more maybe from Europe going
to the US it's supposed to say actually the other way around,
but that is that is clearly a big theme at the moment.
Usually, in fairness though, it is, we see a lot of themes
coming from the US to. Europe could you elaborate on
that on the you go I'm. Saying this is a theme that is
the hottest topic in the US currently and I completely
agree. It's definitely something that
the Europe is way ahead of the curve on and it's not to say
that America. US and American fund managers
aren't considering ESG whatsoever, but I think it is
now in from a fundraising perspective.
It is definitely not a check the box exercise, but it is a it
needs to be something that is checked in order for an investor
to enter into the fund depending on where they fall into that
that need. From the SG perspective, it's
it's one of the biggest things I've seen recently, which is
fascinating. I mean, what does it look like?
Is it just increasing priority on it or I mean maybe you can?
Take that up table. But what it actually look like?
Just increasing demand for it? Has it manifest?
I can take that. I think, look, I think investors
have brought it to the forefront of their investment objective
and therefore that's really pushing the industry to be more
accountable for ESG. I think historically there was
an argument that because there are glenders at the end of the
day don't control the company, but the involvement needed to be
at the screening stage rather than during the life of the
investment. And I think Lps are challenging
that convention and that's why I think he's hear it more talked
about in the market. You know they are saying, look
if you're a scale lender and you have a long term relationship
with these companies and these sponsors and you definitely are
a counterparty with influence, sometimes you're the only person
in that capital structure. Besides, besides the sponsors,
you should be able to push and make these companies uphold
high, high ESG standards. I think the other topic that is
being talked about is that often times you're lending to middle
market companies that are small and probably don't have the
resources or the infrastructure to really be tracking policies
and frameworks. And I think the direct lender
can act as a resource in that in that situation.
I think all of those are things that are really being pushed by
the LP community. And and again, we've been
raising funds and I think we've seen how much more
accountability the investor community is asking on the
direct lending side on ESG practices.
Dressing, so sorry, I kind of cut you off.
My apologies. Did you want to kind of
elaborate on ESG? No, no, I'll totally echo Andrea
as well as the, the LP community as well is pushing.
We probably have a similarity base at the end of the day.
So they are clearly pushing us as well to be more comfortable
at the at the at the astral level, but also to push that to
each of our portrayal companies. And obviously the most
importantly is you need to push that to the smaller side.
Smaller businesses whereby the music function is probably not
not a real solid function and usually done part time by the
senior, for example the CFO or likes.
So we are clearly getting more and more questions and focus
from IP on that front. We are definitely pushing that
as well to our to our debt partners as well whether that's
on the unit on the non diet lending side, but also on the
capital market side where we've seen a couple of, a couple of
names in the lower finance market being properly as if
compliance as nothing was saying And clearly this year we will, I
mean part of our objective is to make a big third of it's not
half of our debt finance, new debt finance.
Actually easy friendly we're even thinking and not in that
one we're even thinking actually turning an old financing into a
year as you friendly one. Interesting.
How's that received, Martin? I mean, how's from your end of
the market, What's the kind of general view on that?
Well, I I I think we've we've all mentioned it, it touches all
facets of of the market at this stage right.
And what that translates into intangible terms for us on on
the South side when we're selling loans or bonds is, is,
is actual demand and as a result pricing and you know the
execution that you can achieve. So you know, I think perhaps,
you know whether it was 18 months ago or two years ago, ESG
was. A question during the process,
the marketing process, there was a lot of Q&A on the topic,
whereas I think nowadays it feels like it's much more of a,
it is a question, but it drives actual demand, right, being
managed by the investor community that will perhaps not
invest. If the answers are very
different and so therefore it's it's you know has a direct
impact on how we can execute a transaction and what the best
pricing is that can be achieved as a result.
And while I know we're focusing on credit and debt, I I think
what's interesting is that this is not just to to completely
change the topic of this whole conversation.
It's not just focused on credit and debt.
It's spanning across the entire industry, whether it's
agriculture or real estate or just straight private equity
investments. And I think it's it's a.
It's an awesome way that's sweeping the world and it's it's
important that our investors are thinking about this on a
day-to-day out basis and it's reshaping how companies are
building and informing. Is there a kind of this?
Is the big criticism I've heard with this ESG is with the ESG
more generally, is the local standardization and metrics and
how well they actually kind of communicate or actually show
materiality of results? From a private debt perspective
and also managing funds with ESG in mind, what kind of challenges
come with this and what more progress needs to be made in
terms of fleshing out those KPIs?
I think one of the challenges that we see for example is that
some of these companies are small and don't have the
resources to really be tracking these KPIs or even be doing
anything with the data and internally.
So I think that's a big challenge for direct lenders.
You can't push it, but the company perhaps is not well
resource to to be able to address it.
And and again I think LP's are are are saying well you will
need to help and they're holding the direct lending or the direct
lender or the private equity or the shareholder accountable for
helping those companies push those ESD frameworks and making
sure that it's part of their everyday operations rather than
just a check the list and a KPI that goes into a system.
I would add to that from and I don't know the answer and I'm
just going to float it out there.
It's from an accounting perspective as we've seen the
evaluations of regardless of whether it's private.
Debt, private equity, real estate, have we seen the from an
accounting perspective, how valuations have evolved in
financial statements, where ESG might fall in down the road into
financial statement metrics? If that is a key competency or
core competency rather for the underlying managers, that it'll
be interesting to see if that ever gets kind of flown into the
financial statement footnote somewhere.
Or more earlier in the process is kind of what you're saying as
opposed to kind of more? That kind of.
More from like a tracking perspective.
So that way you as Andrew has alluded to, you're holding your,
the Lps are holding their investor, their sorry, their
funds honest to it and saying well if this is something you're
touting then you know put your money where your mouth is, let's
let's show it to everyone and how we're doing it.
So I want to move to eyeball transitioning from a debt kind
of asset managers perspective, is it playing out the way it was
anticipated to every organization has a different
approach I think in areas where global credit firm and therefore
that has been at the forefront of our agenda.
We formed a committee back a few years ago when this was
announced. And what we've been doing is
making sure that all of our documents have, you know,
replacement benchmark language in them to make sure that we are
having a smooth transition transition.
But more importantly, we get to a place where it's economically
neutral for both us, the manager, but also for the
companies. But I'll let Martin maybe
chiming on their perspectives. Yeah, it's quite similar, right.
I think we have a, we have a team internally that's been
working with the loan Market association specifically on.
You know, deriving A suitable, you know, revised benchmark, but
specifically the coming up with the right language that would be
inserted into the documentation. That's been obviously a project
that's been going on for a number of years.
I think the key thing as Andrea highlighted is that we're
looking to move to something which is to quote Andrea just
now economically neutral. I think that is one of the.
To see key sort of drivers here, but it's obviously not a very
simple transition. You know there's a lot of work
that has been done. There's still probably more work
that needs to be done. You know from a cell type
perspective in a way you know what we're looking for is the
wording. That is the consensus.
Is it consensus, if you like, equivalent to your born, live,
or currently? And then it is the fact of just
updating the documentation. For it, but I think you know the
updating the documentation is the easy part.
The more common is finding that consensus in the 1st place,
which you know, I think we've done a lot of work on between
the banks and as I said the loan Market association in particular
as well. Fascinating.
So fairly pretty interesting stuff.
We're gonna wrap it up shortly. But before we kind of finish up,
I just wanted to get a statement kind of or a sense from each of
you where you sit in the market, what the next four years hold
for the private debt market? But Jordan, maybe you want to
start us off. Well, look strategically from an
Iqeq perspective, I really hope that the private tech market
continues to rip and grow. We are able to service the fund
administration side of it from end to end.
And I think that is my outlook is really hopeful and excited
for it. But I personally do believe that
it is it will continue to grow. I think that investors are
really. Getting involved and wanting to
take advantage of the market, current market conditions.
So hopefully those will maintain as we proceed.
Do you wanna touch on that as well?
And then we'll move to Andrea. Yeah.
I think the private debt market will continue to grow in the
same way as I think the overall debt markets will grow.
I think it is. It was mentioned before that the
banking community certainly isn't going anywhere.
And frankly the institutional debt market is is also growing.
So that is the high of bond market or the syndicated loan
market. I think there are many
situations now and going forward where you can try and optimize
the the capital structure for the companies and that could be
a combination of both. So it is not just you know one
or the other, but I think all of these markets if you look at the
trend for the last couple of years are heading towards a a a
steady growth. How about you?
What's your general? No, I I, I fully support the
idea indeed I mean the the two two asset classes are are I've
been growing a lot. I think the what has happened
probably over the last year is the the profit that market to
become a little bit more institutionalized if that's if
if I may say with a clear differentiation on each of the
products making it a little bit more maybe easier friendly or
easier to to read or to understand.
Compared to the dedicated market, which is by definition a
very transparent market, the the two solutions are well
coexisting I believe each of them having clearly different
features, different perspective, different attractiveness
according to the transaction you're looking at and obviously
every time we on the product equity look at new transactions.
It's most of the time pretty obvious which direction, which
routes the financing will go between the two asset classes.
I hope that will continue and I don't believe then the two asset
classes really going head to head is necessarily good for the
long term of the industry as it would I mean create potentially
some slice of I mean will create.
At one point in time a slightly more broad friendly environment
of course. So it should benefit to me, yes,
but I don't believe that in the long term that's the right way
to to to to to to get financing in place.
So I would only hope that the two asset class continue their
route on the differentiated but but attractive products for for
each of them. Interesting, Andrea.
Next four years What does it hold for the private debt
market? I think there's a lot of space
to continue to grow, but I think we'll also see signs of maturity
of that market. What I mean by that is that
you'll see, you know, ESD triple in and people becoming more
demanding. You'll see some managers exit
the market, less new entrants in the markets.
I think you'll see maybe a little bit more consolidation.
But in general, I think that the trends for for growth remainder
and you know I think this crisis and also allowed investors to to
see the fundamental investment thesis of the asset class they
saw that in fact it was. Resilient.
They saw that in fact there was less mark to market movements.
They saw how the robust contractual protections worked
and I think that will give investors comfort to continue to
commit to the asset class. Fascinating.
Well, thank you for joining us, Jordan, Andrea, Tebo and Martin.
For recording of this real deals Private Get roundtable and the
latest in private equity news, you can always go to
realdeals.eu.com. I'm Simon Thompson.
Thanks to our guests for joining us.