Permira benefits from US policy uncertainty as investors flock to Europe

Investors have reassessed their exposure to the US amid tariff uncertainty, which has benefitted Permira, according to the firm’s head of strategic opportunities.

Before US president Donald Trump’s so-called “Liberation Day”, investors were already concerned, according to Ian Jackson (pictured).

Because of potential tariffs and the uncertainty around policy announcements, limited partners were contemplating whether they were over exposed to the US, a situation that he had not seen before.

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“Investors are saying for the first time in their careers, they’re looking at the US and saying, are we overexposed? Should we be diversifying? And so, yes, we are probably going to be a beneficiary of that in the short term, that reallocation of capital and the repricing of Europe relative to the US,” he told Alternative Credit Investor.

Jackson joined Permira in the summer of 2022, as the firm sought to diversify its private credit business and launch a new strategic opportunities arm. It was at a time when interest rates had just started going up and there was a worsening geopolitical landscape.

He says at that time he thought he’d be doing more “defensive” style deals, which in effect would mean refinancing impending maturities or helping companies out of a liquidity crunch.

“We anticipated a lot more companies would be struggling with cash flows and would see margin compression,” he said. “That didn’t really happen. Liquidity came back much more quickly than expected, and spreads tightened, especially in the large-cap space, although in the lower mid-market where there remains a dearth of capital, we didn’t see spreads tighten as much. By the time we got to the middle of 2023, you wouldn’t even know there was a war on in Europe or that spreads had widened or interest rates had gone up.”

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So even then, they ended up working on what he calls more “offensive” style deals, supporting M&A activity and more focused on growth. Today, even with all the uncertainties, it is still 60-40 in favour of offensive style opportunities, he says.

In his view, despite the 90-day pause on the vast majority of tariffs and the deals that are being announced with different countries, including the UK, the world is entering a period where a baseline level of tariffs will become the norm.

“I suspect that management teams are now examining their supply chains at a granular level, considering factors such as the source of imports, applicable tariff rates and the costs associated with adjustments, instead of focusing on growth,” he said. “They will be trying to determine whether they are able to seek cheaper alternatives or shift production domestically, weighing considerations of capital expenditure against the evolving tariff landscape.”

In this environment, he has seen an increase in companies looking for short-term working capital, such as 18-month or two-year facilities.

“These companies may not have enough of a track record to secure bank financing, but they have an interesting business model not burning cash and need the working capital to grow,” he said. “That’s a big opportunity for us to step in.”

He’s particularly looking at companies which have very limited cross-border trade however, because it is “incredibly tough to price an appropriate risk return today when the rules of the road keep changing”.

He says it is difficult to find businesses that won’t be impacted, either directly or indirectly, and that there is a huge unknown because tariffs might continue to change from one week to the next.

“It’s just a question of whether you are being sufficiently compensated for the known unknowns,” he added. “It may seem obvious in several weeks but today it feels like a bet rather than investment.”

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Although there is a big opportunity set for Permira, with a 20 per cent increase in the number of deals Jackson is seeing in the year to date, compared with last year, there are challenges for borrowers.

He says it is getting increasingly difficult for refinancings, for example, as there are some businesses that have not grown into their capital structures as they had been expected to.

“So, they may not be generating enough cash, maybe leverage was four, four-and-a-half times,” he said. “And now it’s five times and the existing syndicate doesn’t want to roll. So, these companies need a higher cost of capital to refinance their bank facilities. We’re likely to see that. You’re probably going to see more amend and extends, pushing out these companies’ debt repayments by a few more years.”