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Alternative Market Briefing

"The timing is exquisite" for alternative credit fund manager specialising in SME lending and green infrastructure

Thursday, June 17, 2021

amb
Craig Reeves
B. G., Opalesque Geneva:

According to Prestige group, a private debt provider that manages several specialist alternative credit funds, the two main themes shaping our world in response to the global pandemic are (1) fiscal stimulus and how and where it is distorting public markets, and (2) climate change and the 'greenification' of the economy, which is accelerating since the pandemic. The asset manager is benefiting from these two themes through funds that either invest in agricultural and renewable infrastructure or in SME lending.

In this interview, Craig Reeves, founder of Prestige, explains the group's rationale and focus. He has more than 26 years of experience in financial services as a professional investment manager, trader, and investor in alternative investments, hedge funds, capital markets, and real estate.

He will present in next week's webinar, Small Managers - Big Alpha, Episode 2 (22nd June at 10:30 am ET).


Opalesque: Prestige focuses on private lending. You say you see two major trends in that space. What is the first one?

Craig Reeves: The trend is clearly the financial impact and the financial response by governments around the world to the pandemic. There is an enormous amount of fiscal and monetary stimulus, trillions of dollars, and that has forced equity prices to reach all-time highs. And they may drift higher this year and next year. But the opposite has happened in the bond world: the yields have reached an all-time low. We saw in November last year $18tln of bonds in negative yield. From that perspective, that is causing investors some challenges.

We are seeing in the financial press articles where people are saying that most investors have a traditional portfolio of bonds and equities, a 60/40 barbell approach, that this approach has been around for more than 50 years, but now we are living in a post-pandemic, post-Financial Crisis world. Investors should increase their allocation to alternatives, and off that allocation, put half in liquid hedge products and the other half in private market debt and equity.

The market is going that way because a lot of big asset managers are building private lending teams and funds, and buying private lending businesses. One of the reasons they are doing this is because they are sitting on a lot of cash. But the reality here is that they can get a better yield and better value. A lot of the private markets are less pumped than the public markets. In private markets, they can also negotiate terms and conditions.

From our side, we are seeing more of this narrative coming into the real world because we have had £25m allocated since the beginning of this year from an Italian pension fund, €32m from a very large financial institution in Finland, we are talking to a lot of private equity groups that want to allocate to private debt, we have raised more than $300m's worth of wholesale debt in the last year.

There is a lot of interest in the space that we operate. This is all being driven by the hunt for yield.

Opalesque: The first trend you see is the hunt for yield and therefore a general move towards private markets. What is the other trend?

Craig Reeves: The other trend seems to have accelerated since the pandemic; it is climate change. A lot of the government discussions, stimulus, and fiscal and monetary extraordinary accommodation are going into the "greenification" of the economy.

The EU is creating its own green bond for nearly €700bn; the UK is also doing its own thing with the biggest green bond issuance in its history, for example. For the first time ever, the EU has said to the financial regulators across Europe that they want to encourage sustainable investments. Three months ago, the SFDR was born. Every fund in Europe has had to re-submit their Offering Memorandum with their own categorisation of sustainability.

For the first time in history, you have governments and regulators on the one side, and investors and consumers increasingly on the other side, insisting, asking that their money is managed in a sustainable way.

Opalesque: How is Prestige riding these two waves at the same time: the hunt for yield and the search for sustainability?

Craig Reeves: As a 14-year old group, we are a fund management business that raises wholesale debt effectively for three dedicated specialist finance businesses, Privilege Finance in Cambridge, Nucleus Finance in London, and Capstone Capital Group in New York. The difference between these three is the type of customer and the type of lending activities.

Privilege is very much focused on farm, food, rural, agricultural businesses with a heavy focus on renewable energy, waste-to-energy infrastructure finance. We have been involved in about 50 projects. And they are on average getting bigger. Farming is under enormous pressure to change; the UN is telling governments around the world that there could be three billion more people on the planet in the next thirty years.

The Nucleus and Capstone businesses are SME-lending across a range of different types of industries. They have different types of funding products from small working capital loans to larger invoice finance, property finance, facilities finance loans. Of course, now we are focused on helping companies financing sustainability - so there are companies that we avoid and others that we focus on. There is a mix of the old economy and the new economy; a steel wholesaler, civil engineering and construction businesses, a payroll company, an IT services company, a law firm, an accounting firm… During the lockdown, we were financing food and convenience stores that wanted to expand, to buy more stock.

Opalesque: Tell us about your credit funds.

Craig Reeves: We have five different funds focusing on three main strategies: SME lending in the U.S., SME lending in the U.K., and two funds in agricultural/renewable energy infrastructure lending (in the U.K).

Opalesque: Are you dealing with more opportunities now?

Craig Reeves: There are a lot of opportunities coming our way, partly because of our reputation and our track record. The timing is exquisite for some of these opportunities; the deal flow pipeline is enormous, bigger than it was last year, and much bigger than two years ago. The investor side of it is looking at this in a more innovative way now. They see the need for such investments in their portfolio, either because of the yield hunting element or the ESG element.

***

Founded in 2007, the Prestige group manages approximately $1bn in assets and has raised over $2bn of fund investments and $300m of wholesale debt. Its 120 team members are based in the U.K., Malta, Luxembourg, and Cayman Islands. Prestige includes Prestige Capital Management, Prestige Fund Management and Prestige Asset Management, Privilege Finance and Nucleus Commercial Finance.

***

Upcoming webinar:

Small Managers - Big Alpha - Episode 2

With larger quantities of capital chasing the same alpha strategies and continuing to erode alpha, savvy investors are turning to smaller and/or emerging managers as they look for alternative sources of return. Opalesque presents a carefully screened panel of such investment managers.

With:
- Robert Zuccaro, Target QR Strategies,
- Mukhtader Mohammed, Arbitrium Capital Partners,
- Craig Reeves, Prestige Funds,
- Mark O. Witten, Portal Asset Management

• When: Tuesday, June 22nd at 10:30 am ET
• Free registration: www.opalesque.com/webinar/

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