The fund manager M&A demand for private markets

There have been four major deals in the private markets space since March as existing asset managers look to capitalise on the growth in alternatives. 

Demand for alternative products, a significant addressable market, a pathway for growth and strong credit risk premia are among reasons cited by the firms for the acquisitions. 

Research by Preqin forecasts assets under management in private debt are anticipated to grow at a compound annual growth rate of 11 per cent from 2022 to 2028 to reach US$2.8 trillion.

Compared to 50 per cent in the US and 30 per cent in the UK, the percentage of credit for property that comes from private credit is just 10 per cent in Australia which presents a growing pathway of potential demand. 

The reluctance of banks to finance large projects also presents an opportunity as an alternative funding source, particularly with the high volume of residential properties that need to be built. 

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Making these acquisitions now puts these firms in a good position for this future demand. 

Money Management rounds up the recent M&A activity:

GQG Partners

In March, GQG Partners completed the acquisition of minority interests held by Pacific Current Group in Avante Capital Partners, Proterra Investment Partners, and Cordillera Investment Partners for an aggregate cash consideration of US$71.2 million. 

Avante is a private credit and structured equity investment manager, while Proterra and Cordillera are both private equity firms, all based in the US.

These will be the foundational investment in the firm’s new GQG Private Capital Solutions (PCS) division. This will provide a broad range of financing and strategic solutions to mid-market private capital asset management firms, including perpetual equity investments, structured financings, and distribution services across institutional and retail markets.

HMC Capital 

In May, alternative asset manager HMC Capital announced it will acquire private real estate debt manager Payton Capital. Like GQG, the firm is looking to establish its own private credit platform. 

The firm said it wants to establish a diversified private credit platform over the medium term covering real estate, corporate, mezzanine and infrastructure private credit investment management. 

The strategic rationale of launching a private credit platform is that there is a $350 billion addressable market opportunity in Australia over the next five years, more superannuation funds are allocating to the asset class and the current environment of strong credit risk premia is a “golden period” for private credit.

Regal Partners

At the start of this month, Regal Partners announced it will acquire Merricks Capital, a firm founded in 2007 which specialises in private credit and alternative investments in Australia and New Zealand.

Regal said the $235 million deal will significantly expand its scale and capability in private credit and that there is a strong alignment of interests and highly complementary range of investment strategies between the two firms.

A shareholder presentation about the acquisition said it expects accelerating demand for private credit vehicle.

“Regal remains highly positive on the outlook for private credit in Australia, with demand for credit and credit-like solutions anticipated to accelerate as traditional providers of financing continue to withdraw from the market. Private credit is an asset class where scale, underwriting expertise and consistent access to attractive deployment opportunities are a key contributor to positive returns.”

Centuria 

While not a new acquisition, Centuria Capital Group announced in April that it will increase its stake in real estate finance Centuria Bass from 50 per cent to 80 per cent for $57 million.

The listed firm said it has taken the decision to increase its holding as a way to scale up its platform and broaden its real estate debt offering.

John McBain, Centuria Capital joint chief executive, said its investors have developed a “rapidly increasing appetite” for the asset class.

“We retain high conviction over this asset class and are focused on broadening the range of real estate debt offerings to our investor network. Centuria’s investor network have developed a rapidly increasing appetite for the relatively competitive returns and short duration these funds exhibit.”