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M&G funds GBP4.9bn of private financing deals in 2014

M&G Investments has provided GBP4.9 billion of private financing to corporates and institutions in the past 12 months, as pension funds and institutional investors continue to seek the secure, and often inflation-linked, cash flows these investments provide.

Across the private finance spectrum, a desire by corporates and institutions to diversify their funding sources has been a driving force behind decisions to refinance and seek additional funding from different sources this year.
 
Mark Hutchinson, co-head of alternative credit, M&G Investments, says: “Investments are now being made in a variety of structures. Whether it is the realisation of operating assets’ value through a sale and lease back deal or a private loan to a company alongside the traditional banks by our Direct Lending team, companies are working with M&G in order to create a bespoke solution for their financing needs.”
 
“Pension funds and institutional investors, the natural owners of long-term capital, are increasingly providing finance over the long-term in areas where banks previously dominated the market. They are attracted to the contracted cash flows and often enhanced structures private investments can offer, providing greater stability for trustees and plan sponsors.”
 
John Barakat, head of real estate finance, M&G Investments, says: “Since the onset of the global financial crisis, M&G was among the first non-bank lenders to identify investment opportunities in real estate finance. Borrowers like M&G have the ability to offer entire whole loan financing solutions. Going into 2015 we are seeing increasing demand for alternative methods of funding real estate in the UK and continental Europe.”
 
Real estate finance – M&G has deployed almost GBP2 billion in Europe since the beginning of 2014, including a GBP238 million financing for Northern Trust Group, the UK property investment, development and land regeneration company. Activity has continued in continental Europe with the financing of two shopping centres in Ireland and Spain as well as the EUR110 million acquisition financing of the largest Dutch residential property since 2008. Borrowers are attracted to the M&G’s ability to offer entire whole loan financing solutions.
 
M&G closed its initial real estate debt fund in 2009. In March this year, M&G completed the fundraising for its two new junior commercial mortgage funds, reaching GBP1.35 billion of capital commitments from over 40 institutional investors from Europe and the US. M&G has also raised GBP1.5 billion in external funds to invest in senior commercial mortgages in addition to capital invested on behalf of Prudential.
 
Long-lease real estate – M&G’s pension fund clients continue to seek long-term, bond-like returns available from long lease property that are linked to inflation.  Working in conjunction with M&G Real Estate, the market-leading long lease proposition has now invested over GBP5 billion of which over GBP1 billion has been invested in the past year. 
 
M&G completed the largest single office transaction outside of London in June. Two prime offices in Manchester, which are let to RBS for a further 23 years with annual uplifts, were acquired for over GBP300 million, on behalf of the Pensions Protection Fund and an internal client. The deal is testament to the strength of M&G’s approach of combining the expertise of two business units in order to analyse both the real estate and fixed income/credit components.
 
The GBP2.5 billion M&G Secured Property Income Fund continues to invest in and develop a wide range of real estate, such as supermarkets, hotels, offices, student accommodation and residential property on behalf of pension fund clients. An increasing number of the deals completed for this strategy are attractive alternatives to bank finance for the companies involved as they realise the value of their operating assets.
 
Social housing – M&G has invested over GBP400 million in private loans to housing associations in the past 12 months. Until the financial crisis, housing associations generally relied on banks and The Housing Finance Corporation to meet their external funding requirements. M&G has now invested over GBP5 billion in UK social housing through property transactions, public bonds and private placements.
 
In February, M&G completed a pioneering deal with the Welsh Government providing over GBP150 million to 17 Welsh housing associations in order to finance the construction of 1,000 social and affordable homes. In addition to this, GBP45 million was provided to Link Group, the first financing of its type to a housing association in Scotland.
 
Private company lending – M&G has continued its programme of lending directly to medium-sized companies with the M&G UK Companies Financing Fund 2 lending over GBP130 million in the past 12 months. Hall & Woodhouse, the Dorset-based brewer, diversified its lending away from banks for the first time with a GBP20 million loan for ten years from M&G.
 
M&G has invested almost GBP500 million to larger corporates mainly through private placements which continue to be an important funding source. Drax, the UK’s largest power station, borrowed a further GBP100 million from M&G in May as it continues moving towards biomass-fuelled generation.
 
Alternative credit – over GBP500 million has been invested in long-term structured private debt during the past year. This has been driven by the changing financing landscape and includes a range of different investments that may emerge into standalone asset classes in the future.
 
Infrastructure – M&G’s infrastructure equity arm, Infracapital, most notably completed fund raising for its latest fund with commitments of over GBP1 billion and has already invested GBP350 million of this. M&G continues to work closely with Prudential on the development of the Swansea Bay tidal lagoon and invests in infrastructure, across both debt and equity.

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