M&G Investments to launch senior debt fund

M&G Investments plans to launch a senior debt fund this year.

The unleveraged senior debt fund is expected to be seeded with several hundred million of capital from in-house fixed income clients and will target external capital from a range of pension funds and insurance companies. The eventual target raise is thought to be at least £1bn.

At least 10 other investment managers have said this year that they propose to launch senior debt funds to capitalise on the withdrawal of banks from property lending and the shortage of finance. John Barakat, head of real estate finance at M&G said: “We have a demonstrable track record and a team in place that has been doing deals and like many of our funds, we will be able to comfort investors that we are also putting significant capital from Prudential to work in the strategy”.

M&G already invests in senior debt for in-house fund clients. Taking account of deals in the pipeline, Barakat’s 12-strong team expects to have invested over £1.3bn in senior and junior debt in the 12 months to June 2012.

As well as the in-house senior debt mandates, the team also invests on behalf of a junior debt fund, the M&G Real Estate Debt Fund, which closed last year with €343m of in-house and external capital from some 12 investors, including €100m from Prudential.

M&G’s debt investment strategy encompasses senior, junior, whole loans, good quality secondary loan acquisitions and loan-on-loan finance. Last year M&G was the first non-bank provider of loan on loan finance, providing £400m of senior and junior capital for Kennedy Wilson’s acquisition of a £1.4bn Bank of Ireland portfolio of UK loans.

“To be able to write large individual loans gives us a unique position in the marketplace, and that translates into attractive returns for our investors and certainty for borrowers”, Barakat added.

M&G recently stepped in to provide £266m of senior finance for Round Hill Capital’s acquisition from Blackstone of student housing portfolio Nido, a deal it committed to in two weeks. Hedge fund Och-Ziff provided a £80m mezzanine loan and the deal funds later this month.

The M&G junior debt fund is expected to be “fully invested” by the end of June if pipeline deals go through, Barakat said. “We have started speaking with investors about a second junior debt fund and Prudential will likely make a similar-sized repeat investment into it”.

Jane Roberts, editor