Pantheon’s private credit duo expects insurance companies to fuel further growth for the business, after closing a $5.2bn (£3.9bn) senior debt strategy earlier this year with a sizeable chunk of capital from this client segment.
“We are spending a lot of time addressing investor demand from the insurance side, and that’s an area where clients are looking for capital efficient solutions,” Rick Jain (pictured left), global head of private credit, told Alternative Credit Investor.
“They like the diversification and duration aspects of credit secondaries, in particular. It’s not just diversification by company, but by manager and vintage year. We expect that to be a big growth area for us.”
Pantheon launched its first credit secondaries fund, focused on Europe, in 2018, at a time when there weren’t many of such strategies around.
Since then, Jain says it’s been a “steady and disciplined focus” on growth, with the group now managing $12bn across the division and a range of vehicles, including evergreen ones.
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Although private credit secondaries have largely focused on LP-led deals, there has been a growing interest in GP-led transactions in the last couple of years. Jain says the group’s second or third deal was in fact what they called at the time a “GP liquidity solution”.
Since then, they’ve completed around 40 such deals, representing over $4.5bn of invested capital, but Jain argues that the market for them will just continue to get bigger.
“GPs are becoming more proactive about managing their fund durations,” said Toni Vainio (pictured right on front page), head of European private credit at the firm. “There’s also a lot of capital in separately managed accounts (SMAs) or balance sheets affiliated with fund managers.
“GP stakes firms and managers with affiliate balance sheet capital that have supported earlier, older vintage funds, are increasingly looking to rebalance that capital to new activities. You’ve also got funds of one or SMA investors who want to accelerate liquidity or change the profile of what they own. It’s also a phenomenon that GPs have found secondary players like us be a very good conduit to achieve strategic objectives around distributing capital quicker.”
Jain highlighted opportunities particularly in asset-based lending, venture debt and royalties, which would be invested in through the group’s special opportunities credit secondaries fund.
“We continue to see great tailwinds and growth in the senior secured lending market in the US and Europe,” he added. “In fact, Europe’s pretty interesting right now, for both US and European clients as a place to allocate capital, we’re certainly seeing growth in that strategy. Then on our opportunistic credit side of our business, we feel there is a real gap in the market, where not a lot of people have the right skill sets, cost of capital or capabilities to find opportunities there.”
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Vainio added that they are seeing discounts of between par to 15 per cent in senior secured funds and 10 per cent to 30 per cent on the more opportunistic side, where there are fewer secondary buyers.
Private credit secondaries are one of the key growth areas in private markets, with transaction volumes predicted to soar to $40bn by 2027, according to Jefferies. As a result, more and more managers are looking to take advantage of the opportunity.
Although Jain and Vainio welcome the competition, they are quick to highlight that it is not as easy as it seems to establish a presence in the market.
“We don’t think it’s an easy market to just drop a billion dollars in and try to compete,” Jain said. “And that’s where all the aspects of sourcing and underwriting and relationship building really make a difference. But I don’t think we’ve seen any meaningful pressure, in terms of new entrants, either just announcing or really being credible in this market.
Vainio added: “As the transaction sizes have started growing quite meaningfully, even new entrants that raise smaller pools of capital may not necessarily be able to participate at scale in some of these larger transactions…Where we’ve seen more competition is for smaller LP stake sales, which can be highly intermediated. The market pricing has become more aggressive in some of those situations, though we feel the market is increasingly deep and broad.”
