Looking ahead to SuperReturn Private Credit Europe later this month, we explore the three themes that are shaping the European private credit landscape today and tomorrow.
Manager selection: a balancing act
European Private credit has a diverse investor base, but what it does not have is a long investment history. A lack of history and, therefore, a lack of data, makes it challenging for LPs to benchmark performance and create a diversified portfolio.
What’s more is that not only is it challenging for LPs to benchmark the performance of a manager, but this increasingly diverse investor base has an increasingly diverse set of requirements. From liquidity to risk, investors are not always looking for the same thing. As a result, fund managers are constantly having to balance the differing needs of the different pools of money.
Every manager would claim to be unique, but how many of them actually are in reality and how do they communicate their ‘unique’ advantages?
- How are managers differentiating themselves today and what is the best way for them to communicate their approach and advantages?
- With an increasingly diverse group of LPs allocating to private credit all with different liquidity and risk requirements, how can managers balance the competing needs of different pools of money?
The cycle is turning, but when?
It’s not possible to point to a cycle in European private credit; particularly for the newer asset classes of senior and uni-tranche private lending. No-one knows what will happen and how performance will change through the cycle.
One thing is certain – at some point things will change; it’s just a waiting game for now.
It’s easy to thrive during the good times, but when the cycle does turn, a whole new skill set may be required. Managers will need to quickly establish if they have the capability and sufficient team size to restructure.
It’s the topic that everyone’s talking about. So, what better way to start Day 2 of the conference?
Our panel of experts discuss what to do when the cycle turns and preparing for the inevitable, answering questions on:
- What will happen when there is a change in market conditions and what does the forthcoming cycle mean across the globe?
- How can managers evaluate whether they have the capabilities to restructure and what is the key to navigating this time intensive process?
- Might a secondary market develop as managers strive to provide liquidity and what are the other implications on the private credit market?
Too much money chasing too few deals?
With the level of capital being raised in recent years, it’s no wonder there is a lot of noise around competition. A record 324 private debt funds are currently in market, seeking a combined $153bn in capital commitments according to a recent Preqin report (as of November 2017).
So, is there too much money chasing too few deals? It’s a question that is front of mind for a lot of investors. And what’s more is the potential impact of this increased competition, namely the risk of imprudent lending and a slip in quality.
However, competition isn’t all bad – it’s an inherent part of the market. Teams need to remain disciplined in the face of competition, ensure that their due diligence process is thorough and, if need be, simply walk away from a deal.
Two sessions from SuperReturn Private Credit Europe will be the ones to keep an eye out for on the topic of competition:
- What is the state of the market today and what is the effect of increasing competition?
- What are the important considerations when looking at larger sponsored and non-sponsored deals?
- Where are the opportunities in the middle market and what do diversified SME platforms bring to the table?
- Is increased competition leading to imprudent lending?
- What are the consequences of leverage in reality and where do you draw the line in the quest to support returns?
- Is there a slip in quality and are covenants becoming too loose?
There will be plenty to shake up the private credit industry in Europe – and we have the full coverage here. Join us in London on 24th and 25th April – we look forward to seeing you there.