AlbaCore direct lending boss heralds flexible origination approach
Don’t be fooled into thinking that senior direct lending is new territory for AlbaCore Capital Group, says Luke Gillam (pictured), despite the firm launching its first dedicated fund in the asset class.
The private credit specialist has been providing senior loans from its broader platform for years. But AlbaCore decided it now needed its own strategy within the franchise. This was partly driven by the value AlbaCore saw in senior credit following interest rate rises in 2022 and partly driven by limited partner demand. Indeed, the fund launched with significant commitments from Mitsubishi UFJ Trust and the Abu Dhabi Investment Authority.
To set up the fund, AlbaCore brought in Gillam as head of senior direct lending in October 2024 from Goldman Sachs, where he had spent 20 years, latterly as head of EMEA credit capital markets.
The fund, which announced its first close at $1.8bn (£1.4bn) in capital, will target mainly sponsor-backed businesses that have more than €35m (£30.3m) to €40m EBITDA.
Gillam says “you’re more likely to get market leaders, international diversification, product diversification and a stronger franchise” in this part of the market.
Geographically, the fund will largely focus on businesses in the UK, France and Germany, followed by some exposure to Southern Europe, Benelux and the Nordics.
And like many other lenders in this uncertain time period, the fund will focus on defensive sectors such as software technology, business services and healthcare. He is keeping an open mind about consumer and industrial sectors though, where he says are some good companies worth lending to. The fund hasn’t made any investments yet but is in the process of closing a number of deals in the coming month or so.
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The senior lending team will have seven people dedicated to origination. In order to boost origination capabilities, many private credit managers have turned to tie-ups with banks in recent years. Despite coming from a banking background, Gillam says there are no plans to follow that trend.
“We really like the flexibility to be able to go out and source directly with private equity,” he comments. “That’s really the focus, rather than something which we feel might be more narrow. A tie-up with a bank is probably more regionally focused.
“We like the flexibility of being able to originate across Europe and focus on direct bilateral relationships rather than going via a tie-up.”
However, he says it will be interesting to see how well these joint ventures work. Where the alignment of interest between funds and the banks are strong, it can work really well, in his opinion.
But he adds that he is “not convinced that in some of these [partnerships], the alignment of interest is that good”.
An interesting dynamic in the current market environment is the growing interest in European direct lending versus the US. The US, as a bigger and more mature market, has always accounted for the bulk of direct lending deals. But investors are turning more and more to Europe to capture better returns.
“When I started [at AlbaCore] late last year, this narrative around US exceptionalism was really dominant and we were thinking through the pros and cons of US versus Europe,” says Gillam.
“We actually felt we had a pretty good story why Europe was better than the US, but we were worried about the macro view biasing people’s perspectives. Now I think you’re preaching to the converted because people really can see the benefits of Europe. There are less competitive spreads, tighter structures and overall I think it is slightly less aggressive. But also, now the macro theme is switching away from that US exceptionalism towards more positivity about Europe.”
