Spotlight on Thomas Kyriakoudis, Partner & Head of Capital Solutions, LGT Capital Partners
Global Thought Leader Spotlight
Thomas Kyriakoudis, Partner & Head of Capital Solutions, LGT Capital Partners
In my role as Partner and Co-head of credit solutions at LGT Capital Partners I am responsible for managing the Private Credit exposure of the LGT Endowment. The LGT endowment has invested over US$500 million in private credit in 2022 and expects to invest up to US$1 billion in 2023.
Our investments in private credit are diversified across geography, sub-strategy, and industry sector. We deploy capital via funds, co-investments, SMAs and secondaries. We believe that today’s private credit market offers favourable risk adjusted returns.
Private Credit is intimately linked to Private Equity with the later experiencing exceptional growth since the 2008 GFC. From 2009-2021 Private Equity activity grew across all geographies, as measured by deals completed, funds raised and the number of active firms. This trend peaked in 2021 with over US$500 billion capital deployed across 2,500+ deals in a single year. This level of activity is more than 2x the capital deployed in 2017, 2018 or 2019 and 4x the activity of a decade earlier.
In order to finance this exceptional boom in private equity transactions, the private credit asset class has also grown rapidly as investors searched for yield in a zero-rate environment and banks gradually withdrew from providing sub-investment credit to financial sponsors. As more private credit funds were raised, competition increased and combined with low interest rates borrowers were able to secure financing at historically attractive levels, helping to drive record levels of activity in the Private Equity industry.
More recently, rapid increases in interest rates, the reversal of QE and well publicised banking failures are having a profound impact on assets in the private credit industry. The balance of supply and demand has altered in favour of lenders and away from borrowers. For investors this is leading to higher spreads, lower leverage, and stronger documentation.
While default rates remain low and most PE sponsors remain supportive of their portfolios, increased amounts of cash flow are taken up in debt service and it is possible that default rates will increase in 2024 and 2025 for certain businesses that have taken on too much debt.
There is also potential for higher levels of stress in the non-corporate sector including consumer debt and commercial real estate.
As Private Credit is generally a floating rate product, so when combined with wider spreads and, in some cases, significant OIDs, today’s investors are benefiting from returns of up to 2x what was available 2 years ago, with a yield target of 8-10% realistic for unlevered senior secured lending.
As some companies come under pressure from higher rates combined with cost inflation there is likely to be more opportunity to invest in the stressed/distressed credit market.
There are also a number of opportunities emerging from providing liquidity to the very large amount of capital in existing PE funds where exit activity is significantly reduced. This would include product like NAV lending.
Overall, we expect 2023 to offer sophisticated/institutional investors exceptional opportunities to deploy capital at rates materially higher than what we have seen in the past decade. Investors can access the opportunities via a wide variety of strategies and sub strategies which could include senior lending, subordinated lending, structured credit, stressed/distressed debt, speciality finance, asset backed lending and sector specific lending.
The note of caution is that we do see the potential for elevated levels of risk in today’s environment and so caution, judicious underwriting or risk and diversification are all critical to ensure strong returns.
Thomas will present on the emergence of NAV based financing as an investment opportunity and the key considerations for investors 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.
Thomas Kyriakoudis, Partner & Head of Capital Solutions, LGT Capital Partners
Thomas Kyriakoudis is a Partner at LGT Capital Partners in London, UK. He is co-heading the Private Credit Solutions (PCS) team and chairs the Credit Investment Committee.
Prior to joining the Firm in 2021 he was one of the two founding partners of Permira Debt Managers in 2008 and their Chief Investment Officer from 2015-2021.
Prior to Permira he was a Vice President in Morgan Stanley's structured credit desk and worked at ABNAmro and Monitor Company.
Thomas holds a MBA from London Business School and a Master Degree in Engineering from Cambridge University.
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