Spotlight on Joe Millward, Founding Partner, Epsilon Direct Lending
Global Thought Leader Spotlight
Joe Millward, Founding Partner, Epsilon Direct Lending
“In my role as a Founding Partner at Epsilon I’ve had the pleasure of co-founding a private credit asset management firm which provides capital to support growing middle market businesses in Australia and in New Zealand. Epsilon’s team have been active corporate lenders for over a decade, having closed >50 transactions and >AU$1.7 billion of middle market direct lending.
“There are several key themes underpinning the continued attractiveness of middle market private credit lending in the Australian/New Zealand market.
“Market Structure: The structure of the Australian Corporate Lending market continues to change as bank capital, which currently represents c.90% of total corporate lending volumes, reduces exposure. This dynamic is prevalent in the middle market corporate lending sector. This provides attractive lending opportunities which expand every year as banks recede further towards market share levels consistent with advanced offshore markets (EUR banks account for ~50%, while US banks account for ~10% of corporate lending). The mid-market is offering a larger market for private credit investors to access every year, increasing the capacity to meaningfully diversify a portfolio of loans across strong creditworthy businesses.
“Relative Value: The Australian middle market direct lending space offers numerous credit-enhancing factors that when combined demonstrate significant relative value to syndicated loan markets both domestically and offshore. Bilateral lending to mid-market businesses benefits from lower leverage levels, higher pricing per turn of leverage, and tighter documentation structures with more covenants than in larger syndicated loans which suffer from higher levels of competition between lenders.
“Market Activity Remains Stable: Despite negative commentary around activity in the large cap/syndicated space, the middle market has remained stable and active. Businesses are trading at reasonable multiples of earnings and demand for debt capital to finance expansion is stable despite the increase in interest rates.
“Global markets have experienced significant volatility in almost every area of the economy since 2019. Investors and allocators must be alert to this increased volatility across global markets and how this affects the underlying assets within the private credit market, as well the behaviours of asset managers.
“Global markets have changed significantly in the past three years, and credit investments underwritten in this time were often not structured in a manner reflective of eventual volatility. Consequently, the private credit landscape now contains fund vintages from this period which have likely experienced a reduction in credit quality since origination. Allocators must therefore be weary when allocating to existing funds with investment vintages in this period, as new capital can be invested into existing assets to ‘amend and extend’ credit investments in struggling business which may have a range of issues which diminish credit quality.
“2023 is an opportune time to invest in the newer private credit vintages. The uncertain and negative outlook held by many market commentators creates opportunities for alert private credit investors with strong market networks through which to invest capital. These opportunities are occurring in market segments where large capital participants, mostly banks, are reducing exposure or even totally withdrawing. The middle market corporate lending space is a primary example of this dynamic, which has improved the direct richness of the opportunity set available to private credit investors. Importantly, Australia’s middle market is still active with M&A activity, presenting a strong pipeline of opportunities for private credit asset managers.”
Joe will present on the opportunity in the Australian direct lending middle market in the context of its relative value compared with offshore markets, at Global Investment Institute’s upcoming Private Credit Roundtable, taking place on Thursday, 4 May 2023 at The Residence - Grand Hyatt Melbourne, Victoria.
To register your interest in attending, click here or for more information email zlatan.kapetanovic@globalii.com.au.
Joe Millward, Founding Partner, Epsilon Direct Lending
Joe is a Founding Partner of Epsilon Direct Lending and member of the Investment Committee. Joe’s 23 years of experience includes running a €3 billion private credit fund in the European market through the GFC. His background covers direct lending funds management, growth and event-driven corporate financing, business strategy, compliance, operations and finance across Europe and Australia. He previously held the roles of Executive Manager in CBA’s corporate bank, Chief Operating Officer of the Corporate & Investment Banking Division at Bank of America Merrill Lynch Australia and Head of Loan Funds at the Royal Bank of Scotland plc’s asset management business. Joe is a fully qualified accountant and fellow member of the ACCA.
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