M&G Investments’ £1.35bn capital raise for two new junior debt funds illustrates investors’ continued appetite for higher- risk investments.
Prudential’s asset management business took in cash from 40 institutional investors in the US and Europe and said the capital raising for both vehicles was heavily oversubscribed.
The latest close for its M&G Real Estate Debt Fund II raised £605m aimed at European mezzanine real estate debt – the riskier end of the capital structure, generating returns of 13% to 15%.
Alongside that, its M&G Real Estate Debt Fund III reached a final close of £750m – the “hard cap” for the fund – to invest in stretch senior positions.
While demand from investors for mezzanine products has increased, demand from borrowers is also on the rise as senior debt margins fall, making higher-priced junior debt more affordable as part of a whole loan structure.
M&G was one of the first major institutions to move into European property lending when banks retreated from the sector, raising €343m (£286m) of equity at the third close of its debut fund in 2011.
The current fundraise follows Pramerica Real Investors’ announcement in November that it had raised €820m for preferred equity investing.
M&G also confirmed that former Morgan Stanley banker Lynn Gilbert has joined its 20-strong real estate lending team to lead origination.
bridget.oconnell@estatesgazette.com
