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Talking alternative investments: Private credit, private equity
- The trend towards growing demand and appetite for alternative investment mandates has been significant in 2019, according to Dino Zuccollo, Co-founder, and Chairman of Westbrooke Alternative Asset Management. Westbrooke currently manages over R13bn ($885m) on behalf of approximately 3,000 direct private clients, 120 wealth management businesses around the world and a variety of local and offshore institutions.
- Private equity, especially in South Africa, has had fewer opportunities than private credit. Zuccollo has seen a significant increase in demand and capital flows from clients seeking access to global private markets and alternatives in the second half of 2019.
- The primary reason cited for allocating to alternatives: the lack of correlation, and diversification away from traditional equity and bond markets.
- Zuccollo sees illiquidity in private credit to be a feature and not a downside of the alternative space, locking in investors for a period of time, allows for better long-term decision-making by investment managers.
- The private debt funds have been relatively quiet for the first half of the year in South Africa, but have been more active in the second half, driven by the government of national unity and capital flows flowing back into the country.
- Zuccollo has reported Westbrooke's business has done well with 12B, an investment structure into the renewable energy sector in South Africa, deploying approximately R450m ($31m) this year across 65 deals, as Eskom increases electricity costs.
- Furthermore, Zuccollo believes the private credit space is booming, both from the business and investor demand, especially in the UK. Westbrooke Yield Plus secures private credit funding against real estate and is delivering a return of between 7% to 9% in sterling.
- Westbrooke's Hybrid Capital business, which funds mezzanine and preference shares, has been active, fully investing in the UK with approximately £40bn ($51bn) of funds, across seven to eight investment opportunities. A second fund could be established next year.
- Westbrooke's plan is to cautiously re-enter the US real estate space, with a tentative buyer bidding environment and a political atmosphere set to offer attractive investment opportunities.
- Westbrooke is also looking to build out a private credit capability similar to that offered in the UK, according to Zuccollo.
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