Swiss-based private equity group Partners is to step up its investment in debt as it switches its focus to “shorter duration” investments.
In its latest research, the firm, which manages £25bn of investments, revealed that it characterises investment in core and trophy assets in top-tier cities widely favoured by the broader market as “risky” relative to debt, value-added and secondary opportunities.
To avoid this “herding mentality”, it said it is shifting its attention to shorter duration investment – which it defines as the extent to which an investment’s value would be affected by an increase in yield – such as senior debt, mezzanine investment and secondary investment.
The report said: “Senior debt investments with floating rates have recently offered attractive credit spreads over LIBOR. An argument can be made that this portion of the capital stack increasingly offers compelling risk-adjusted returns with very short durations and hardly any sensitivity to the percentage change in value if the yield increases by 1%.”
On direct property, Partners said it believes that non-core investments offer prospects for value-creation through active management, which give these investments the ability to absorb or mitigate potential threats from sudden yield increases.
Similarly, a secondary investment has less sensitivity to sudden yield increases as a result of the discounted price at which secondary stakes can be acquired, with many stocks trading at a large discount to net asset value.
The group, which in June closed its Partners Group Global Real Estate Fund 2011 after raising more than $800m (£520m), has participated in several debt and equity deals in the UK market.
In December last year, it was named as an investor in the consortium led by Area Property Partners and Delancey, which completed a £1bn takeover of struggling developer Minerva the previous August.
It has also provided debt for two Docklands deals: Evans Randall’s refinancing of 5 Canada Square (pictured), and Vico Capital’s £107m refinancing of 17 Columbus Courtyard in Canary Wharf.
