M&G launches £500m private credit fund
M&G Investments has unveiled a new fund targeting opportunities in the fast-growing private credit space, with £500m committed ahead of the launch.
The investment giant’s first European Long-Term Investment Fund (ELTIF) is called the M&G Corporate Credit Opportunities strategy and will be managed by the firm’s private credit team, which currently has around €20bn (£17.4bn) under management.
It is targeting returns of Euribor plus five to six per cent gross of fees over the medium term, with gross potential yields estimated between nine and 10 per cent.
Prudential’s With Profits Fund has already invested £500m into the strategy.
The private credit market is booming amid higher interest rates and regional bank troubles, driving companies towards alternative lenders. Private credit offers diversification from public markets during a period of extreme volatility, as well as reliable streams of income.
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M&G said the new fund’s strategy will be separated into illiquid and liquid investments.
The illiquid corporate credit bucket will invest in large and mid-market direct lending opportunities and junior loans, with higher yields. It will represent 15 to 30 per cent of the total portfolio.
The liquid corporate credit bucket will focus on floating rate, senior secured syndicated loans, representing the remainder of the portfolio.
“With continued uncertainty around interest rates and inflation, private credit represents an attractive source of floating, stable income and uncorrelated returns,” said Catherine Ross, head of private credit at M&G.
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“Once a niche asset class, the significant growth in private equity in the past decade and companies staying private for longer has further evolved the depth and breadth of the corporate credit market. Yields in private credit may look very attractive but the effects of a fast-changing interest rate environment directly feeds through to company balance sheets, meaning selectivity and experience in this market is paramount to be able to pick the winners from the losers.”
The M&G Corporate Credit Opportunities ELTIF is now open to professional investors. The firm plans to widen access to the strategy in early 2024, after new ELTIF regulation comes into effect that will open up private equity and credit funds to retail investors.
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Neal Brooks, global head of product and distribution at M&G, said that the new ELTIF rules “will spearhead the democratisation of private markets strategies in Europe as it has the potential to widen access in a meaningful way.”
