Tuesday, January 31, 2023

North Wall targets opportunities in European illiquids

Fabian Chrobog. Photo: Eva Palazuelos

Volatility sparked by the energy crisis and economic uncertainty heading into winter is generating opportunities in European private credit, an area of alternatives offering more reliable income streams to investors.

Among the managers looking to capitalise is North Wall Capital, a London-based manager running €1.2bn ($1.2bn) in illiquid private credit.

“The European opportunity is distinctly compelling now due to a particular set of Europe-specific difficulties,” says Fabian Chrobog, founder and chief investment officer.

“Europe is acutely exposed to the energy crisis, whereas the US has energy security. Additionally there are limits to what central banks can do to tame inflation here due to the weakness of countries such as indebted Italy, which would suffer from higher rates.”

North Wall is a provider of private credit to non-standard European situations, at the illiquid end of credit universe. The firm’s sweet spot lies somewhere between direct lending and distressed: credit investment in areas of inherent dislocation and performing deals with complex collateral.

North Wall’s activity in the litigation finance sphere drew headlines earlier this year when it extended a further £100m ($108.4m) to law firm PGMBM to fight ESG cases, trebling its investment.

That funding came from North Wall’s second-largest strategy, which invests in ESG-focused legal assets. Its largest is the flagship credit opportunities strategy.

A source familiar said NWEOF I, North Wall’s first flagship fund, was currently exceeding its target of 20% gross IRRs. A spokesman declined to comment on performance.

Private debt continues to be favoured by investors due to its “potential resilience, which is in part down to the avoidance of fixed rates, and its seniority in the capital structure,” according to a note by Preqin analysts earlier this year.

The research firm predicted assets in private debt would more than double from $1.2tn at end-2021 to $2.7tn by end-2026.

The asset class mushroomed after the financial crisis of 2008 as banks de-risked and moved away from the space. “Our current pipeline is dominated by transactions where direct lenders or traditional banks have stepped back from deals,” says Chrobog.

North Wall currently has a headcount of 20 and plans to grow. It also runs co-investment programs for clients wanting a more tailored approach.

“If investors want more specialist exposure than we offer in our multi-asset commingled funds, we do also offer exposure to certain sub-strategies of the flagship or even certain individual deals,” says Chrobog.

Typical ticket sizes are growing due to the current dislocation, up from €20m to €30-40m. North Wall’s investor base is split a third each way between the US, Europe and Asia.

The asset class is dominated by larger firms such as KKR and Angelo Gordon. The firm believes its smaller size has an edge in providing access to small deals early-stage: good relationships and contractual scaling rights mean North Wall can scale deals alongside their counter-parties.