Mezzanine funds to become more attractive
The current refinancing gap for middle market companies created by reduced bank lending has opened up some attractive mezzanine debt investment opportunities, according to Mercer.
In its paper Mezzanine debt — An attractive lending opportunity the firm noted that as banks had reduced their lending levels following the global financial crisis, mezzanine debt funds had become one of the main sources of financing for middle-market companies.
Global head of Mercer’s bond boutique Paul Cavalier said mezzanine debt was a strategy that investors should consider as part of their future alternative or opportunistic fixed-income portfolios.
“As with most investments there are risks attached, and active portfolio management and credit analysis skills will be required to ensure default risk is minimised,” added Cavalier.
Business leader for Mercer’s investment consulting business, Graeme Mather, said there was another reason that mezzanine debt would attract investors in the current market environment.
“The demand from companies for mezzanine debt instruments has meant that they now appear to offer attractive return characteristics for the risk being taken and could be considered a good opportunistic investment for investors without liquidity constraints,” he said.
Mercer’s paper stated that the investment case was also supported through analysis of the demand side, with approximately US$500 billion of capital still to be deployed for future private equity investing and thus potentially requiring some mezzanine support.
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