Name: The state of European private credit fundraising
Uploaded: 2024-03-27T10:29:51.308Z
Duration: 245.48
Description: We spoke to Vijay Padmanabhan, Managing Director, Cambridge Associates, about what's affecting fundraising within private credit right now, including portfolio challenges, the importance of staying close to companies and how to conduct necessary due diligence to ensure asset growth

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Vijay Padmanabhan_Interview.vtt

ENGLISH

{{00:00:05}}
Yeah, hi, I'm Vijay Padmanabhan.

{{00:00:07}}
I am a Managing Director at Cambridge
Associates, and I manage the private

{{00:00:12}}
credit research for Europe and Asia.

{{00:00:22}}
Fundraising has definitely picked up.

{{00:00:24}}
There was a period last year when it
was a bit slow, but that's with the

{{00:00:27}}
rest of the asset class, the rest
of the market, and still private

{{00:00:31}}
credit outperformed last year.

{{00:00:33}}
But this year, in the last few
months, it's picked up, and I think

{{00:00:37}}
we expect that to continue in 2024.

{{00:00:45}}
I think the biggest challenge is
still the portfolio challenge.

{{00:00:48}}
I think interest rates are high.

{{00:00:50}}
Costs are still high.

{{00:00:52}}
Last year there was, the inflation
helped the top line and the EBITDA, grow.

{{00:00:59}}
Companies were in a better
position to handle the cash flows.

{{00:01:03}}
They don't have the
same benefit this year.

{{00:01:05}}
There's going to be a lot more focus
on, the cost on the lack of growth.

{{00:01:10}}
and how the portfolio companies
are managed by the by the PE firms.

{{00:01:16}}
So there's gonna be
increasing focus on that.

{{00:01:18}}
We are likely to see more defaults
probably some increase in loss rates as

{{00:01:22}}
well, which private care is not used to.

{{00:01:25}}
So that's a new phenomenon that
you wanna start seeing in Europe.

{{00:01:27}}
I think that will be
the biggest challenge.

{{00:01:29}}
I think the way to mitigate that is for
the PE firms and for the direct lender

{{00:01:33}}
to stay very close to the companies.

{{00:01:36}}
To have enough covenants, to have enough
discussions about, the breaches, etc.

{{00:01:42}}
And I think that's, going to be the
biggest way to mitigate and stay close

{{00:01:45}}
to the companies watch the cash flows,
and if necessary, restructure early.

{{00:01:58}}
We do a number of things when we
diligence, look at a number of things

{{00:02:01}}
when we diligence a manager, but I
think the biggest, change has been

{{00:02:06}}
the way we look at the ability to, the
manager's ability to handle a crisis.

{{00:02:10}}
So we look at the experience that the team
has in during the previous crisis times.

{{00:02:17}}
We look at, the portfolio monitoring
team, the resectioning team, how they

{{00:02:23}}
are set up, and how much experience they
have in doing that in prior vintages.

{{00:02:30}}
We also look at the quality
of the documentation.

{{00:02:33}}
We speak more about the quality
of the ebitda, the governance in

{{00:02:36}}
the in the portfolio companies.

{{00:02:39}}
We discussed more of that, which
I think in the past was less of a

{{00:02:42}}
concern, but as we go into into the
into a kind of a more difficult macro,

{{00:02:48}}
I think these become more important.

{{00:02:55}}
I think the biggest trend is
the launch of new products.

{{00:02:58}}
So within direct lending, you're
going to see, you're seeing a lot

{{00:03:01}}
of evergreen products coming in.

{{00:03:03}}
You're seeing single
harvest funds coming in.

{{00:03:06}}
Some of them are, they look better
than the others, so we'll see which

{{00:03:09}}
one kind of eventually, becomes
the the longer term product.

{{00:03:16}}
We are also seeing the launch of the
increase in SRTs, now financing for

{{00:03:21}}
potentially sub lines as well coming into
product credit, so I think the biggest

{{00:03:25}}
trend is going to be the expansion
of product credit and the inclusion

{{00:03:28}}
of more more sub assets within that.

{{00:03:32}}
As banks are retrenching and reducing
their exposure, we are going to see

{{00:03:37}}
more asset backed funds as well.

{{00:03:39}}
So I think the biggest trend is the
increase in the number of number of

{{00:03:43}}
sub asset classes within private pay.

{{00:03:44}}
And I think we're going to start seeing
more of that in 24, and then probably

{{00:03:49}}
significantly in 25, 26 as well.

I am a Managing Director at Cambridge
Associates, and I manage the private

There was a period last year when it
was a bit slow, but that's with the

rest of the asset class, the rest
of the market, and still private

But this year, in the last few
months, it's picked up, and I think

I think the biggest challenge is
still the portfolio challenge.

Last year there was, the inflation
helped the top line and the EBITDA, grow.

Companies were in a better
position to handle the cash flows.

They don't have the
same benefit this year.

There's going to be a lot more focus
on, the cost on the lack of growth.

and how the portfolio companies
are managed by the by the PE firms.

So there's gonna be
increasing focus on that.

We are likely to see more defaults
probably some increase in loss rates as

So that's a new phenomenon that
you wanna start seeing in Europe.

I think that will be
the biggest challenge.

I think the way to mitigate that is for
the PE firms and for the direct lender

To have enough covenants, to have enough
discussions about, the breaches, etc.

And I think that's, going to be the
biggest way to mitigate and stay close

to the companies watch the cash flows,
and if necessary, restructure early.

We do a number of things when we
diligence, look at a number of things

when we diligence a manager, but I
think the biggest, change has been

the way we look at the ability to, the
manager's ability to handle a crisis.

So we look at the experience that the team
has in during the previous crisis times.

We look at, the portfolio monitoring
team, the resectioning team, how they

are set up, and how much experience they
have in doing that in prior vintages.

We also look at the quality
of the documentation.

We speak more about the quality
of the ebitda, the governance in

We discussed more of that, which
I think in the past was less of a

concern, but as we go into into the
into a kind of a more difficult macro,

I think the biggest trend is
the launch of new products.

So within direct lending, you're
going to see, you're seeing a lot

You're seeing single
harvest funds coming in.

Some of them are, they look better
than the others, so we'll see which

one kind of eventually, becomes
the the longer term product.

We are also seeing the launch of the
increase in SRTs, now financing for

potentially sub lines as well coming into
product credit, so I think the biggest

trend is going to be the expansion
of product credit and the inclusion

As banks are retrenching and reducing
their exposure, we are going to see

So I think the biggest trend is the
increase in the number of number of

And I think we're going to start seeing
more of that in 24, and then probably

Expert Insight

We spoke to Vijay Padmanabhan, Managing Director, Cambridge Associates, about what's affecting fundraising within private credit right now, including portfolio challenges, the importance of staying close to companies and how to conduct necessary due diligence to ensure asset growth