Responding to growing customer demand, IQ-EQ is enhancing its private debt and credit offering, capitalising on its experience, global reach and modern technology platform. For Gautier Despret, Head of Debt Services at IQ-EQ Luxembourg, private debt is a key asset class especially in a period of economic downturn.
How is IQ-EQ positioned to serve private debt as an asset class?
Gautier Despret: Although private debt is an asset class that IQ-EQ has been serving for many years now, we have recently witnessed a significant increase in demand for debt products and a tremendous interest from our clients in more complex structures than in the past.
As private debt becomes a more significant part of investor portfolios and as the structures develop across multiple jurisdictions and strategies, it was important for us to invest in the relevant technology platforms to accompany our clients throughout their debt and credit journey. The technology needed for debt is very specific to this asset class as we provide loan agency and loan management services. It was therefore very important for IQ-EQ to find the right partner that continuously invests in enhancing their platforms to be relevant to the new market’s needs. We selected Allvue as our debt platform and completed our tech-enabled offering with the powerful accounting general ledger of FIS Investran. We have also enhanced our proprietary IQ-EQ Cosmos platform to meet the reporting requirements of debt managers. With our integrated technology, we are confident that we have one of the most modern and complete solutions on the market to serve our clients.
Expertise is another very important feature when serving alternative asset managers. At IQ-EQ, we have a Private Debt and Credit team who have on average over 20 years’ of experience in this asset class. We have recently made some key acquisitions in the US and, through these, have been able to reinforce our team by adding some more US-based debt specialists to our global debt and credit desk, complementing the wider team in the UK, continental Europe, Singapore and Hong Kong.
“ Private debt is an asset class that has performed well despite the pandemic-induced economic slowdown.”
How will the sector evolve in the coming years, in Luxembourg and worldwide, especially in the context of Covid-19?
Private debt is an asset class that has performed well despite the pandemic-induced economic slowdown. The latest report on private debt published by Preqin in November 2020 highlights that 91% of the investors they spoke to will either maintain or increase their allocation to private debt over the longer term. I would like to draw a parallel here with what happened during the global financial crisis, where we witnessed a similar trend and a real surge towards distressed funds. Private debt is an asset class that tends to fare well during periods of economic crisis and this explains why new GPs are entering the private debt arena. What we have seen at IQ-EQ is a number of private equity managers setting up a debt fund or a parallel debt fund and we believe that this is a trend that’s here to stay.
How is private debt impacted by SFDR and any other related ESG regulations?
SFDR relates to the publication of information from financial market participants on the sustainability of their investment decisions. This sets requirements for funds based in the EU as well as those managing capital raised in the EU. In short, SFDR impacts all asset managers including those active in private debt.
Relating to the private debt space specifically, the inclusion of ESG criteria in leveraged loan documentation has so far been driven primarily by borrowers and sponsors, with loans being secured based on sustainability targets and sponsors using ESG credentials to attract investors and maximise exit values. Lenders now also appear to be focusing more and more on ESG and are increasingly linking interest rate ratchets to ESG targets. This is an area that has really taken off in the last six months.
Concurrently, ratings agencies (such as Fitch Ratings and S&P Global) are now factoring ESG criteria into their determinations with new ESG-focused risk assessments and evaluation products. It’s also important to highlight that the Loan Market Association and the European Leveraged Finance Association have developed their own set of ESG disclosure topics.
SFDR and other related ESG regulations must not be seen an additional burden, however, but should be perceived as a way to bring further transparency and help in the mitigation of risks. A recent survey by Coller Capital, of 97 general partners representing 452 funds, found that 89% of respondents have an ESG policy in place. This evidences how important ESG has already become among GPs in meeting the needs of their investors and regulators, with global players such as Ardian, Permira and Fortress Investment Group leading the way.