US asset manager raises largest direct lending fund in Europe
Ares, a US alternative asset manager, has raised Europe’s largest direct lending fund as it seeks to capitalize on loopholes left by banks in the aftermath of the financial crisis.
The Los Angeles-based group has raised 6.5 billion euros in six months, well above its target of 4.5 billion euros. The total capital available for the fund, including leverage, will be around € 10 billion. An announcement is expected Monday morning in New York.
Direct lending, where asset managers provide credit directly to companies, have grown in recent years due to investor demand and post-crisis weakness from traditional lenders. The top 20 companies in the industry have raised around € 43 billion over the past eight years, according to data from Preqin.
In 2015, Ares, which opened an office in London in 2007, led some of the most important financial packages of any debt fund in Europe, including a Loan of 300 million euros for the French investment group listed Eurazeo to finance the acquisition of a majority stake in the financial services company Fintrax.
Ares has invested more than € 12 billion since its inception, with half of its investments last year in small businesses with earnings before interest, taxes, depreciation and amortization of € 15 million or less.
Investor appetite for private debt funds has been supported by the yields they offer, which are generally higher than those on traditional bonds and credit.
“The asset class is still quite immature in Europe,” said Michael Dennis, co-head of the European direct lending platform Ares. “Bank withdrawal in Europe is still an issue that is playing out. . . It favors companies like us who have a lot of capital to deploy.
In the UK, many large banks are facing strain on their balance sheets and their investment teams are much smaller than before the crisis, Dennis added.
Ares has concluded more deals in Europe than in the UK for the first time in almost a decade, with the UK’s percentage of total deals increasing from around 60% in 2016 to around 40% Last year.
The drop was in part due to increased risk following the vote to leave the European Union and growing concerns of a ‘tough’ Brexit.
“The bar is very high in the UK when we look at transactions,” said Blair Jacobson, the other co-head of Ares’ direct lending platform. “We are thinking very seriously about the impact of Brexit on an underlying business.”
But the drop is also due to the entry into force of new regulations that limit the ability of European banks to lend, he added.