Debt by Any Other Name (First of a Series)

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At the start of 2017 spring training, the NY Yankees had a undrafted prospect on their roster named Ruth. Not the Babe, of course, though the coincidence has been noted. “It’s kind of cool to have the same last name,” said Eric Ruth, a 26-year-old pitcher.

Interestingly other than the Bambino there have been no Ruths in major league baseball. 149 Smiths, 110 Johnsons, 97 Jones, 0 Schwimmers. Alas, having the Sultan of Swat’s surname doesn’t insure success. Last week Mr. Ruth was sent back down to the minors.

There’s a cruel reality to leveraged lending as well. Calling yourself a senior debt provider doesn’t mean the assets you book carry the same risk/reward as cash-flow loans managed by top middle market firms who support private equity. As a pitcher’s ERA is a fair indicator of his capability, so is the yield parameter of an asset manager...

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QUOTE OF THE WEEK

“At some point this year, we’re going to experience more volatility.”
– Seth Masters, chief investment officer, Alliance Bernstein Private Wealth Management.

Chart of the Week: Capital Source

Mar 27 2017 Chart

So far this year fundraising for middle market firms is matching the pace we saw in 2016.

Lead Left Spotlight

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Kevin Griffin

CEO and Chief Investment Officer

MGG Investment Group

"Entrepreneurs focus on different things and different structures than private equity owners."

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Stephen Nesbitt

Stephen Nesbitt

Chief Executive Officer

Cliffwater

"Direct lending returns are 10%, versus what could be zero for IG bonds."

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Stephanie Link

Managing Director & Equity Portfolio Manager

TIAA Global Asset Management

"Until interest rates get over 5% - it’s premature to think for bond holders to run for the hills."

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Eric Green and Mark O’Keeffe

Eric Green & Mark O’Keeffe

Global Co-Head & Portfolio Manager - Middle Market Capital

Muzinich

"Unlike in the U.S., banks are a factor in Europe."

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Michael Ewald

Managing Director

Bain Capital Credit

"You can’t have a top down thesis in private credit since the market is illiquid."

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David Petrucco, Ed Cerny, & Mark Gudis

Founding Partners

Backcast Partners

"Forecasting asks where historical trends will take you in the future. Backcasting is asking, where do you want to be in the future."

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Features

The Pulse of Private Equity – 3/27/2017

On a long enough horizon, returns for PE funds of all sizes converge

By and large, the macroeconomic environment remains the most significant factor to bear in mind when assessing long-term private equity fund performance. Given the impact of the financial crisis, it makes sense that no matter the size of the fund in question, at the longest time horizon—10 years—internal rates of return (IRRs) have by and large converged. Following the typical J-curve of fund performance, at that point in the conventional fund lifecycle most assets that end up contributing to the majority of a fund’s return have already been sold...

Private Debt Intelligence – 3/27/2017

First-Time Fund Managers

The environment for first-time private debt managers has begun to stabilise in recent years as the industry continues to mature. Fundraising has been consistently robust, performance has been strong, and investors are increasingly open to the prospect of committing to managers without a proven track record.

First-time private debt managers secured a record total in 2013 ($9.6bn), and in the years 2013-14 firms have raised over $23bn as the market continues to develop....

Leveraged Loan Insight & Analysis – 3/20/2017

Leverage on institutional middle market deals climbs on new money deals in 1Q17

Interest in middle market loans from large corporate investors tends to wax and wane based on market conditions, but currently investors are super receptive to these smaller credits given a supply demand imbalance in the leveraged loan market. As a result, leverage levels on institutional middle market deals are rising in 2017 across most deal purposes. Leveage on dividend recap deals peaked in 2013 at 5.3 times and was in decline through 2016 down to 4.3...

Private Debt Intelligence – 3/20/2017

Private Debt Fund Performance by Strategy

The private debt asset class has continued to satisfy institutional investors with 93% of those surveyed by Preqin at the end of 2016 stating that the performance of their private debt investments had either met or exceeded expectation. However, performance as measured by the median net IRR of funds varies notably across the three central private debt strategies: direct lending, mezzanine and distressed debt...

Middle Market Deal Terms at a Glance

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Mar 13 2017 SPP V2

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