Q3 2020
Feature
First closes come
to fore in quiet Q3
Robin Armitage
Researcher Creditflux
Postponed final closes point to late-2020 and early-2021 rally
Fundraising in Q3 2020 revealed an incredible anomaly – no final closes were held on European direct lending funds for the first time since the financial crisis. That this should be the case, in the summer and early autumn of such a stormy year, is quite understandable. For many managers, it was the first time they were able to take time off since the March downturn, as well as a chance to catch their breath between surges in COVID-19 infections.
At the same time last year, five funds held final closes. Those included Alcentra’s European Direct Lending Fund III (which closed at €5.5 billion, surpassing the €3 billion target size) and Pemberton’s European Mid-Market Debt Fund II (which closed at €3.2 billion, also surpassing its €2.5 billion target size). These two were among the largest fundraisings of 2019.
Fast forward to Q3 2020, and we saw no final closes – but a spate of first closes did surface. Eleven funds held first closes in Q3, raising €10.2 billion, a staggering increase on Q2, when five funds raised just €1.5 billion. The latest sum is bolstered largely by the Ares Capital Europe V fund, which announced its first close at US$8.2 billion (€7 billion) in its end-of-quarter earnings call. Other standouts include Pemberton Senior Loan Fund, which held its first close after raising €900 million, and Capital Four’s Private Debt III - Senior Lending fund, which has so far raised €650 million.
European direct lending funds holding first closes in Q3 2020
This brings the number of first closes in 2020 up to 18. With one quarter left to go, this figure seems likely to overtake 2019’s 21 first closes. However, despite being down in terms of number of funds, first-close fundraising this year has already overtaken 2019’s final sum. Just over €8 billion was raised last year: as of Q3 2020, €12.4 billion had been logged.
Several managers outlined final closes for earlier in the year, many of which, due to the unusual circumstances, were put on hold. “There are certainly a number of people who’ve had to push back the fundraising cycle,” says one investor. This could signal a boost in final closes in Q4 and Q1 2021.
“Final closing was expected for this summer, but, due to the uncertain environment, LPs that were at a final stage of due diligence asked for an extension of the subscription period,” says Rocío Goenechea, CFO and Head of IR at Oquendo Capital. “Investment committees were focused on current portfolio issues instead of approving new commitments to funds. Some also confirmed that during the summer months liquidity was a priority, so getting approval for commitments to illiquid assets was also hard.” Consequently, two of Oquendo’s direct lending funds are looking at final closes in Q4 2020 and Q3-4 2021.
Other direct lenders, such as Amundi and Beechbrook, confirmed they would be holding final closes at later dates. Amundi’s LCL Leveraged MidCap Loans Fund held a first close in January 2020 and is targeting €250-300 million for a final close in Q1 2021, while Beechbrook anticipates a final close in December for its Ireland SME Fund, which is currently 40% invested.
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European Direct Lending Perspectives
Q3 2020
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