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BlueBay Swept Up by Wave of Divorces in Private Debt Market

BlueBay Swept Up by Wave of Divorces in Private Debt Market

(Bloomberg) -- In an almost classic ‘seven-year itch’ style split, BlueBay Asset Management’s private debt team will start a new life with Dyal Capital Partners in September.

The move is the latest in a series of ownership shifts in the private credit industry with firms such as Idinvest, MV Credit and European Capital all finding new partners in recent years. The trend points to a new phase in the evolution of private debt, where it’s essential to have a backer with the firepower to support growth.

“The main difference between the big managers and the smaller managers is that the big guys have managed to consolidate their capital gathering and investor relations very cleverly,” said John Bohill, a partner with Stepstone Global, which itself boosted its in-house private debt offering with the purchase of Swiss Capital in 2016.

Dozens of new firms have set up over the last decade to take advantage of the shift into non-bank lending. Now those financial institutions who missed out on the start-up wave are looking to invest into an asset class that hit $160 billion in Europe last year, according to research firm Prequin. With just $12 billion between it and real estate, private credit could take over as the fourth largest alternative asset class.

BlueBay Swept Up by Wave of Divorces in Private Debt Market

Scaling Up

In private credit, scale is key to profitability. Managers pay themselves, as well as all costs from staff to rent, from management fees. Unlike the more generous terms under private equity partnerships, the norm in private credit is that those fees are only paid on invested capital.

That is where the investor relations skills come in. More capital means more fees.

A backer with lines into new investors is a major boost for smaller managers. MV Credit, a previously independent credit investment firm that has a track-record going back to before the global financial crisis, sold itself to Natixis SA last year. For the new partner, the acquisition brought access to private debt, something their investors are clamoring to access.

Anthony Fobel set up the private debt team at BlueBay Asset Management in 2011, before the number of private credit managers exploded between 2013-2015. Now with 13 billion euros in assets under management, he’s taking his team and setting up shop independently.

One of the motivating factors in the break-up is a lack of investment on the private debt side by the wider firm, according to two people familiar with the situation. By stepping out from BlueBay, with the support of a long-term investor like Dyal, Fobel’s shop can push to grow further and faster, they added.

The move didn’t surprise another veteran of the industry, who said that Anthony Fobel always acted like it was his own business anyway.

“The business has always been run independently of BlueBay from an investment perspective,” Fobel said in emailed comments on Wednesday. “Over the last few years a separate back-office of legal, compliance, operations and accounting has been created to reflect the size of the business and the fact that it’s distinct from BlueBay’s public market businesses.”

BlueBay Swept Up by Wave of Divorces in Private Debt Market

No consolidation

There has been a lot of talk about an anticipated glut of consolidation in Europe as the asset class expands ever larger. The region is widely acknowledged to be over-banked, and some market commentators say it increasingly looks over saturated with private debt shops.

Deloitte has produced a quarterly report tracking deals done by alternative lenders in Europe since 2012. The number of private debt managers managers has more than doubled to 67 in March from 32 in December 2014, according to the advisory firm. The latest tracker also shows that just the top six managers executed more than 20 deals on a rolling 12 month basis, with more than 50 managers doing less than 10 transactions in the same period.

While there has been a fair amount of M&A, it’s not reducing the number of lenders. With each deal, the lender tally remains static as companies find buyers who were not previously in the private credit industry.

That shift to the next phase in the evolution of private credit will only come when the flow of cash from investors begins to dwindle.

To contact the reporter on this story: Rachel McGovern in Dublin at rmcgovern17@bloomberg.net

To contact the editors responsible for this story: Sarah Husband at shusband@bloomberg.net, Charles Daly

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