European Credit Opportunities

Asset-backed private credit solutions for mid-market, sponsorless borrowers.
Lei Lei
Christophe Rust

Strategy overview

Differentiated, asset-backed private credit strategy focused on sponsorless1 borrowers in European mid-markets. Our team provides flexible and tailored financing to under-served, performing businesses with bespoke funding requirements, enabling us to command compelling lending terms.

Key features
  • Flexible private credit solutions for performing businesses in European mid markets
  • Asset-backing provides an added layer of downside risk management
  • Targets 13-15% pa gross unlevered returns and 7%-8% per annum target cash coupons2
  • Direct origination of off-market investments through overlooked sourcing channels in second-tier European cities
  • Diversified investment portfolio with low correlation to major asset classes, including traditional direct lending

Private credit in an overlooked market

Portfolio Managers Lei Lei and Chris Rust explain how a structural investment opportunity – lending to mid-sized ‘sponsorless’ borrowers in Europe – has arisen, and how best to tap into it for compelling risk-adjusted return potential. Sharing investment case studies and debunking common misconceptions, they help shed light on this ‘sweet spot’ in private credit markets.

Tapping into an overlooked market

01

Over recent years, increased regulation in Europe has driven traditional lenders to retreat from lending to small and medium sized firms (SMEs). This has created a sizeable funding gap and an opportunity for private credit managers to help fill this void by providing much-needed alternative sources of funding.

02

Many well-managed SMEs require flexible financing for expansion and other activities. The need for specialist credit skills and a differentiated approach to origination in this field creates high barriers to entry and this increases the potential for compelling risk-adjusted returns.

03

By sourcing off-market deals rather than partaking in competitive processes, Ninety One can also command higher fees and better lending terms, and with the added layer of asset-backing as protection, the portfolio aims to offer robust downside risk management.

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Lei Lei
Co-Head European Credit Opportunities, Alternatives
Christophe Rust
Co-Head European Credit Opportunities

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1 Borrowers owned by entrepreneurs, families and shareholders other than private equity funds
2 Cash coupon will differ based on market conditions; please note that the annual cash coupon is a component of the overall target return.

Specific risks. Concentrated portfolio: The portfolio invests in a relatively small number of individual holdings. This may mean wider fluctuations in value than more broadly invested portfolios. Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income.Default: There is a risk that the issuers of fixed income investments (e.g. bonds) may not be able to meet interest payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss. Interest rate: The value of fixed income investments (e.g. bonds) tends to decrease when interest rates rise.

General risks. The value of investments, and any income generated from them, can fall as well as rise. Past performance is not a reliable indicator of future results. Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made. Investing in debt entails risks related to a borrower's ability and willingness to repay the principal and pay interest. A rise in interest rates or a period of economic downturn could severely disrupt the market for private credit and erode a borrower's creditworthiness; should the borrower's financial situation deteriorate, the value of the security may also suffer a similar decline. Further risks include, but are not limited to economic, political and legal risks, currency risk, auditing standards and financial reporting differences, possible lack of diversification, control issues, market fluctuations and interest rate risk.

Important information
This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

All rights reserved. Issued by Ninety One.