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Digital Subscriptions > The Hedge Fund Journal > Issue 123 - June 2017 > Scouring European Credit for Value

Scouring European Credit for Value

Chenavari welcomes its 10th year of operation


Generalisations can be dangerous in European credit markets, because any rule has exceptions and it is precisely the anomalies that provide the greatest opportunities. Headline yields for European high yield are well below those for US high yield, but the tables can be turned for mezzanine structured credit, which pays significantly more in Europe than the US. Many segments of direct lending have seen yield compression as tens of billions have been deployed, but a number of niches can still command premium returns and AIMA’s survey Financing the Economy 2016 found that eight of the nine most attractive destinations for private credit were in Europe. Plain vanilla trade finance may now pay as little as 2-3%, but again there are sleeves in the space that offer double digit yields. In consumer debt, whole loans of high quality may only offer high single digit yields, but expertise in acquiring, warehousing and structuring these assets can generate much higher returns. At the same time, Chenavari has more liquid strategies, including a UCITS, with lower return targets and “private wealth managers are quite happy with high single digit returns which have been steadily delivered over the years,” says founder, CEO and co-CIO, Loic Fery.

He is proud of the firm’s first ten years, which have seen the company “build a solid infrastructure and assemble a talent pool to cover the full spectrum of credit assets, something quite unique in Europe”. Chenavari’s reach spans the most liquid indices, options and derivatives, to subordinated bank papers such as contingent convertibles, through to leveraged loans, structured credit, asset backed securities, private debt, bilateral loans with multi-year maturities, and a spectrum of verticals in speciality finance.

Assets of $5.4bn place Chenavari firmly in The Hedge Fund Journal’s Europe 50 ranking of the largest 50 hedge fund managers in Europe. Roughly half of the firm’s assets are now in illiquid credit and private debt. Impressive though Chenavari’s in-house team is, the mainly employee-owned firm (Dyal Capital Partners, which is part of Neuberger Berman, took a small passive minority stake in 2015) could not pursue all of its strategies in specialty finance without the help of its joint venture partners. “We have more than nine partners in seven countries, originating over a billion each year and providing an edge in our ability to service these complex specialized assets where we can still find attractive yields,” says Fery. On top of Chenavari’s 107 staff, including 41 investment professionals, there are another 700 people working at these speciality finance partners in many European jurisdictions. Some new entrants to the European direct lending space might be opportunists, and “perhaps only relocate five or ten people to Europe,” observes Fery, but Chenavari works with those who know the terrain. “We have acquired several regulated companies that have over 20 years’ proven experience of underwriting and servicing loans,” Fery illustrates. Chenavari has already deployed over €4bn into European private credit.

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