3 questions to smart minds

Debt funds gain as an asset class and financing instrument

For this 3 questions to Marc Brugger

LFPI Group
Photo: M.Brugger | LFPI Group
17. June 2014

Debt funds are beco­ming incre­asingly attrac­tive — both as an asset class for insti­tu­tio­nal inves­tors and for compa­nies, for whom finan­cing via debt funds repres­ents an attrac­tive alter­na­tive to bank loans. Inter­na­tio­nal multi-asset mana­ger LFPI has now announ­ced that the LFPI Euro­pean Debt Fund, which has been fund­rai­sing since the end of 2013 and has a target volume of €400 million, has alre­ady raised half of its commit­ments after just a few months. Through the fund, LFPI Group provi­des unitran­che finan­cing and mezza­nine capi­tal, but also acqui­res loans through the secon­dary market. What advan­ta­ges does the debt asset class offer inves­tors, what are the strengths of finan­cing via debt funds for compa­nies and what oppor­tu­ni­ties does LFPI see in the German market?

For this 3 ques­ti­ons to Part­ner at LFPI Group, Geneva

1. Why are debt funds curr­ently expe­ri­en­cing a high influx of inves­tor money and how is the LFPI Group tapping into invest­ment opportunities?

The fund­rai­sing success of the LFPI Euro­pean Debt Fund to date is certainly due to the successful history of the LFPI Group, but also to the current market envi­ron­ment for tran­sac­tions and the broad invest­ment focus of the fund. In the market for corpo­rate acqui­si­ti­ons, finan­cial inves­tors and stra­te­gists are curr­ently paying quite high EBITDA multi­ples in some tran­sac­tions, some­ti­mes in the double-digit range. This makes an equity invest­ment no longer attrac­tive for us in all cases, and inves­tors are incre­asingly looking for alter­na­ti­ves to parti­ci­pate in transactions.

Through our debt fund, for exam­ple, inves­tors have the oppor­tu­nity to parti­ci­pate in the finan­cing of acqui­si­ti­ons, as part of the purchase price is usually finan­ced by debt. Further­more, we are broadly posi­tio­ned with the LFPI Euro­pean Debt Fund, because in addi­tion to acqui­si­tion finan­cing or refi­nan­cing via unitran­che or mezza­nine capi­tal, we can also acquire loans on the secon­dary market, for exam­ple from banks. When sourcing tran­sac­tions, we bene­fit from our diver­si­fied LFPI plat­form, because as an inter­na­tio­nally active multi-asset mana­ger with a variety of asset clas­ses, we some­ti­mes analyze tran­sac­tions as private equity, fund-of-funds or co-inves­tor, in which we then ulti­m­ately become invol­ved with the debt fund, and of course the other way around. This ensu­res an attrac­tive deal flow for us, and the inves­tors’ money is always inves­ted in the opti­mal asset class for the situation.

2. What are the advan­ta­ges of finan­cing through a debt fund for companies?

For compa­nies, finan­cing via a debt fund offers an attrac­tive alter­na­tive to tradi­tio­nal bank finan­cing, as the loan condi­ti­ons can often be struc­tu­red more flexi­bly. In our view, finan­cing must always be adapted to the real requi­re­ments of the company’s deve­lo­p­ment. — In concrete terms, this can mean, for exam­ple, that the repay­ment amount can be adjus­ted to the remai­ning free cash flows if an acqui­si­tion is made in a fiscal year or increased invest­ment is made in the deve­lo­p­ment of a new product. We are an entre­pre­neu­rial, relia­ble and unbu­reau­cra­tic part­ner with a strong team and fast decis­ion-making proces­ses — compa­nies appre­ciate that.

3. What invest­ment oppor­tu­ni­ties do you see in the German market in the coming months?

The German-spea­king market is an attrac­tive invest­ment target for the LFPI Group due to its stabi­lity and the large number of inte­res­t­ing invest­ment oppor­tu­ni­ties. We plan to invest around 40 percent of the LFPI Euro­pean Debt Fund in finan­cing medium-sized compa­nies in German-spea­king count­ries. By the end of 2014, we intend to complete six more tran­sac­tions from the debt fund and expand our inves­tor base in German-spea­king count­ries. In addi­tion, we will conti­nue to be active in the German-spea­king region in the real estate sector, where we have alre­ady inves­ted more than EUR 400 million to date, as well as in the private equity asset clas­ses fund-of-funds and co-investments. 

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