Arrowpoint Capital seeks to tap into super fund demand for private debt

Arrowpoint Capital says the private debt market has never been more popular with super funds as it launches a new product, but it will avoid retail and hospitality firms.

Arrowpoint Capital is looking to take advantage of demand for private debt from super and family offices. Picture: AFP

Fund manager Arrowpoint Capital says demand for capital from businesses looking to expand or make acquisitions is outstripping supply despite a broader economic slowdown as it launches a new private debt product targeting super funds and investors.

Private markets have become popular for superannuation funds and family offices chasing high returns by providing debt to businesses that are often overlooked by major banks in Australia due to their size.

Arrowpoint managing director Andrew McDonnell said private debt markets were fast becoming very popular by investors due to a supply and demand imbalance with more businesses looking for capital than those who will offer funding.

“The supply of capital to good businesses is very low versus the demand for it,” he said. “From an economic standpoint, the ability for an alternative lender to come in and provide a compelling product for funding that’s usually going to be something that’s transformational.

“It is compelling from the borrower’s perspective or the user of the finance, but then also from the fund manager and the investor perspective, harvesting what is quite a premium over the risks you take for that type of lending.”

While Arrowpoint was bullish on the outlook for the private debt space in the coming 12 months, it was more conservative around the Australian economy.

“We tend to avoid businesses where they’re worried about softness and they want to build some capital buffer, or some working capital buffer, or something in their business, that’s not really the stuff that we do,” Mr McDonnell said. “As we focus more on defensive businesses and sectors, we are avoiding anything that is too exposed to consumer spending or hospitality ...”

While the country’s major banks lend to low-risk regulated utilities and infrastructure companies or ASX 50 companies, those which sit at the lower end of the spectrum have struggled to raise debt.

Mr McDonnell said Arrowpoint was focused on event-driven transactions which were often by a company looking to a buyout for new acquisitions or seeking to buy or for capital growth.

He added that private debt fund was low risk as it targeted secured lending to profitable businesses that were often overlooked by the banks.

“The major banks put a greater emphasis on corporate lending versus the SME space, which is more parameter driven where there’s a number of boxes a borrower would need to tick,” he said.

“We’re very much cashflow focused, so we’ll only lend to a business that’s generating a comfortable level of cashflow to service our debt out of the gate.”

The Melbourne-based investment house’s new private debt product is due to launch this month and will offer capital to investment-grade companies on the smaller scale that are often overlooked by the major banks.

Arrowpoint is backed by significant shareholders including the Victor Smorgon Group, Sandra and Barry Smorgon-backed Sandbar Investments and its chairman Stephen Koseff, who are also cornerstone investors.

Cornerstone investors will hold about 20 per cent of the funds raised in the second debt fund, which would be one of the highest in the Australian private debt market and is significant as it aligns the interests of the fund managers with investors.

It comes after the John Wylie-backed Tanarra Capital launched a $1bn fund promising high single-digit returns by tapping into superannuation funds’ and family offices’ demand for long-dated debt to public or private investment-grade companies.

Originally published as Arrowpoint Capital seeks to tap into super fund demand for private debt