Why are we talking about private markets now and how would you describe M&G’s investment philosophy?
Demand from private markets accelerated markedly at a time when there was no alternative, when there was no longer any yield in the bond market. The appetite for private debt sharpened ahead of the rate hike and accompanied the already growing demand for private capital.
Everything was organized from 2008 when the banks withdrew from the intermediation and financing they could offer. This difficult brake generated the growth of demand for private debt, the reorganization of the market, with the appearance of lenders through investment funds. Over the last 20 years, many sectors (healthcare, technology, energy, digital infrastructure, etc.) have become increasingly technical and investment funds have invested in qualified analysts to understand the valuations and capabilities of companies to be profitable. Therefore, the capital market can be an alternative that is usually faster to get into debt than banks. So far, private debt yields have averaged around 10%. Additionally, as the market grew, the secondary market emerged, effectively creating more liquidity.
In 2015, private debt was estimated at 500 billion dollars, then at 1,200 billion in 2021. Today, projections for 2027 amount to 2,300 billion. More and more companies are choosing not to go public. As an example, between 1980 and 2000 there were 6,500 IPOs. against less than 3,000 between 2001 and 2022. It is expensive to go public as the scrutiny It can be painful for a company that then finds itself subject to further scrutiny, due to specific events or questions about its performance or governance.
How has it been structured to respond to this demand?
At M&G we have created a product with monthly liquidity, a kind of best-of what you can find in private debt. M&G Investments’ ELTIF (European Long-Term Investment Fund), called M&G Corporate Credit Opportunities, is a fund designed to provide access to private credit opportunities. Launched with an initial investment of €500 million from our internal client, Prudential Assurance Company Limited (our insurer), it targets an estimated potential gross profitability of between 5 and 6%. The fund focuses on corporate credit investments, divided into two segments. On the one hand, liquid investments, including senior syndicated loans at variable rates, which constitute an important part of the portfolio. On the other hand, illiquid investments, including direct loans to large and medium-sized companies, as well as higher-yield junior loans, represent between 15 and 30% of the portfolio. With the update of the ELTIF regulation in 2024, this ELTIF 2.0 is now accessible to a wider audience, in particular individual investors. The objective is to democratize access to private markets, while offering diversification and income less correlated with public markets in a context of economic volatility and uncertainty.
What sectors do you think are the most strategic?
We position ourselves in SMEs/ETIs that generate an average operating margin of 75 million. We operate in 36 sectors including telecommunications, retail, agri-food, pharmacy, healthcare, with companies known to the general public such as Verisure, Action, Flora, Virgin, etc. raising capital privately. We do not have a sector strategy as such; It is bond selection (stock selection) that essentially guides our choices.
So what is your roadmap for the next three years?
We need to educationally support new private client demand around private debt. We have significant resources, with experts available to support and educate clients about the characteristics of unlisted companies. The critical size of our group allows us to see how many operations are carried out; Today we are the third largest lender on the European scene. However, we must maintain our position in other asset classes, with private debt being an additional driver of growth.
This is a promotional communication. The opinions expressed in this email cannot in any way constitute recommendations, advice or forecasts, nor recommendations to buy or sell a particular security. We are not authorized to give financial advice. If you have doubts about the suitability of your investment, we invite you to contact your financial advisor. Past performance is no guarantee of future performance. Internal limits are subject to change.
An ELTIF is not liquid by nature because its investments are long-term. For investors, this is an illiquid investment. The sub-fund may not be suitable for investors who cannot maintain a long-term, illiquid commitment. A holding period of 10 years is recommended. When redemption requests are not met, the investor may face a longer holding period than anticipated at the time of the initial investment.
Only a small part of the portfolio should be invested in an ELTIF. Performance goals are not guaranteed.
For more information on the M&G Corporate Credit Opportunities fund, visit the M&G Investments website.
Before subscribing you must read the Key Information Document and the Prospectuswhich contains a description of the investment risks associated with these funds. The information contained herein is in no way a substitute for an independent financial advisor. M&G Luxembourg SA has the right to terminate marketing agreements in accordance with the notification process provided for in the New Directive on the cross-border distribution of investment funds. Information regarding complaints handling can be obtained in French at www.mandg.com/investments/private-investor/fr-fr/complaints-dealing-process. This promotional financial document is published by M&G Luxembourg SA Headquarters: 16, boulevard Royal, L-2449, Luxembourg.
Source: BFM TV
