CASE STUDY

European private debt

Italian Pension Plan | Autumn 2018

Engagement at a glance

In seeking to make their first ever allocation to private debt, this Italian pension plan was keen to cast a wide net in order to achieve returns of 5-8% net of fees.

With this in mind, we examined all three major sub-sectors of the private credit market: real estate, infrastructure debt and direct lending. In addition, the investor was keen to examine both senior and subordinated debt across all of these categories. Educational support was a high priority in this project, particularly given the lack of in-house experience with this asset class.

Client-specific Concerns

Although this investor had somewhat restrictive criteria, due to specific operating procedure requirements, it was important not to dismiss potentially interesting opportunities at the outset of the project, so as to develop a full understanding of the strategies available during this investor’s first exploration of the market.

Outcome

  • Market education and knowledge transfer. The various credit segments and transaction types within them were discussed from the outset, but really came to life during the detailed review of different managers. The client was able to keep broad remit and an open mind while gaining a detailed understanding of the various strategies, and only decided to focus on senior secured debt from corporate debt / direct lending managers during the later stage of the search.

  • Optionality: 39 offers were assessed and quickly narrowed to 26 based on the investor’s operating procedures. This included a range of offerings across all three sectors (corporate, real estate and infrastructure) as well as different parts of the capital stack (senior secured vs subordinated debt). These were clustered into different groups for analysis, in order to compare solutions on a like-for-like basis.

  • Customisation to client needs: The RFP was specifically designed for this investor’s particular requirements, as was the manager scorecard. The second stage report, which provided more granular analysis of the eight most appropriate offers, contained Italian translations of critical portions. After four managers presented their offerings in front of the client’s board, the investor’s views were also incorporated in final scores and recommendations.

 

Our specialist says

  • Private debt can be interpreted in many different ways, but the risks involved in achieving the same return target across corporate debt, real estate debt and infrastructure debt are very different. In order to avoid getting lost in the weeds it was important to use a systematic and customised process when comparing and contrasting different strategies.

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