Credit is tough to come by these days. Countless column inches have been dedicated over the last two years to the effects of the credit squeeze, predominantly focusing on the difficulty in raising acquisition finance. One private bank, however, is set to exploit a different niche opened up by the credit crisis.
Investec Private Bank, a group that characterises itself as an investment bank for private clients, believes it has identified a worthy group of debtors in the form of private equity GPs.
Its private equity partner and fund finance service was formally launched this week, having been piloted since the beginning of the year. The team typically lends up to £25 million to private equity GPs secured against private equity investments, management company cash flows or investor commitments.
There are no set parameters for borrowing, says the bank. Instead finance is made available to those operating in the private equity universe to capitalise on whatever individual opportunities present themselves. GPs have so far borrowed cash for a number of reasons, including buying interests from distressed LPs, investing in their own funds and buying stakes in their own management companies from either retiring partners or cornerstone investors.
While most of the banking community continues largely to be in lock-down mode in terms of lending – whether it be residential mortgages, personal overdrafts, corporate credit lines or acquisition finance – it is a welcome vote of confidence in the private equity industry's professionals that they are seen by Investec – a bank that positions itself as backing people rather than deals – as a good bet.
While many from outside the industry see private equity as an industry undone by the credit crisis, Investec is basing this venture on the fact that the industry is populated by astute, entrepreneurial characters and teams.
But if the launch of this product can be read as a pleasing vote of confidence in the prospects of private equity and its protagonists, the confidence does not stretch to everyone. The bank is focusing its efforts on mid-market GPs, having made a conscious decision not to go into the large buyout space. Part of the bank’s diligence process is to understand previous deals and it has looked at two potential deals with large-cap funds, says Investec's Simon Hamilton. In both cases, he says, “we simply couldn't understand how the deals add true shareholder value”. Certain parts of the industry, it seems, still have something to prove.