Realising opportunities in private debt
Private debt is gaining traction as a diversified and resilient asset class
From a niche financing tool for companies deemed too risky by banks to a more mainstream form of funding everything from agriculture to renewable energy, private debt has transformed over the past 15 years to become a roughly USD 1 trillion asset class.1
Private debt is the supply of debt finance to companies from funds such as Allianz Global Investors, rather than traditional funding sources such as banks or public markets.
And for institutional investors, the asset class can offer several benefits, according to Marc Smid, Senior Portfolio Manager, Global Multi-Manager Private Debt, at AllianzGI:
- Portfolio diversification through lending to businesses across different asset classes.
- Targeting returns with downside protection.
- Low correlation to public markets.
With a slowdown hitting the global economy, investors might be interested in the performance of private debt during challenging periods. Private debt has shown resilience, with funds that started to invest in crisis years tending to historically outperform, said Mr Smid during the AllianzGI Private Markets Day in May 2022.
AllianzGI’s approach
Running for over 15 years, the AllianzGI Private Debt Programme makes individually structured loans to mid-market companies via best-in-class asset managers. It has committed EUR 25 billion since inception and has 15 dedicated investment professionals. The programme has made over 80 primary fund investments and benefits strongly from co-investment with parent company Allianz. The programme’s strategy has a stable track record with lower loss ratios than comparable liquid investments. Historic payment defaults per year since inception in 2007 are significantly lower than in the high-yield bond segment.
One of the largest global private debt investors, Allianz has a long-standing track record and ability to invest over economic cycles. Investors can choose between two AllianzGI private debt products:
- The Allianz Global Diversified Private Debt Fund has a focus on corporate private debt, financing more than 1000 middle-market companies with an earnings before interest, taxes, depreciation, and amortisation (EBITDA) of between EUR 10 and 100 million. The investment portfolio is diversified by sector, geography and underlying investment. It targets a variety of private debt segments, including senior, junior, mezzanine, special situations and distress.
- The Allianz Global Private Debt Opportunities Fund has a target size of EUR 300 million with a minimum commitment of EUR 5 million and a term of 12 years with extension period. The investment period is four years. Targeted returns are higher than for the Allianz Global Diversified Private Debt Fund due to more focus on special situations, distress and subordinated private debt.
ESG focus
Environmental social and governance (ESG) is at the core of the funds’ investment strategies, starting with a focus on only companies aligned with Allianz’s sustainability agenda. Allianz conducts a rigorous review of the ESG record of any asset manager it invests with. Those asset managers will need to submit to continuous monitoring to ensure standards are maintained. Through active ESG engagement, Allianz aims to drive change within the portfolio companies.
“ESG is a core element for us,” said Mr Smid. “It is high on the agenda and based on the strong relationships we have with managers. We do require and we can realise standards, procedures and exclusions that comply with our ESG requirements.”
