Finland’s Mandatum Asset Management and fund services platform Universal Investment on Monday said they have launched a new open-ended Senior Secured Loan Fund for professional investors in Europe that will finance leveraged buyouts in Scandinavia and Europe. The fund is set up via a Luxembourg Raif and targets around one billion euro in loan investments on the long term.
Mandatum, the asset management arm of Nordic insurance firm Sampo Group, will manage the fund that will invest in the European and Nordic leveraged buyout financing market. Universal Investment will administer the structure. Mandatum has some 29 billion in assets under management.
“We believe that a set of hand-picked leveraged loans should be a part of every investor’s diversified liquid credit portfolio,” said Alexander Gallotti, head of leveraged finance at Mandatum Asset Management and one of the fund’s managers. “The asset class provides a compelling risk-reward profile from a fundamental credit risk perspective, as well as in terms of non-existent duration risk and typically lower asset price volatility compared to high yield bonds.”
Leveraged loans nevertheless are subject to the usual range of investment risks, such as potential defaults and circumstances influenced by interest rates, financial markets, taxes and liquidity.
Sub-fund to existing Raif
The new fund is structured as a sub fund and is called the UI-Mandatum AM Senior Secured Loan Fund. It is the second sub-fund under a Luxembourg-based umbrella structure that MAM and UI established in April last year as a Reserved Alternative Investment Fund, or Raif. The Mandatum Global Investment Fund SCSp SICAV-RAIF serves as the umbrella fund.
In the medium-term, the sub-fund is expected to be 300 to 500 million euro in size and approximately €1B in the long-term, a spokesman for UI said. The portfolio will be comprised of approximately 50-80 companies, and the typical loan size will be dependent on sub-fund size. The assets consist of loan investments primarily in mid- to large-cap companies as part of a syndicate.
Compared to traditional high yield and fixed rate bonds, leveraged loans have minimal interest rate risk due to floating underlying rates. They typically are secured on a first lien basis with the highest seniority, offering relatively strong security to investors. Borrowers are usually companies backed by private equity and institutional investors.
Club-style
The new sub-fund will invest across the European leveraged buyout space with a focus on European and Nordic syndicated as well as club-style leveraged loans. Club loans usually are smaller than syndicated loans and offered to a more exclusive, smaller group of investors which normally share equal parts of the fees.
The sub-fund will be an Article 9 fund under the Sustainable Finance Disclosure Regulation, which means it will target sustainable investments with net positive impact on society.
A UI spokesman said the sub-funds under the existing Raif have different strategies. The other sub-fund is a closed-end private debt fund. Mandatum already manages a considerable amount of senior secured loan investments for other clients and its group’s balance sheets in addition to this sub-fund, he said.
European leveraged loans are a large and distinct asset class with senior secured loans currently representing approximately half of the syndicated European leveraged finance market, comprising both leveraged loans and high yield bonds.
In the first quarter of this year, the European leveraged loan market attracted some 56.6 billion euro, down 50 percent from the first quarter in 2021, according to data from the Association of Financial Markets for Europe, or AFME.
Opportunistic investing
Gallotti said the fund’s mandate is flexible and aims for a broad investment universe, which is “is critical for sourcing attractive investment opportunities for the fund and its investors.”
The sub-fund will also “opportunistically invest” in second lien loans and high yield bonds, while monitoring the secondary market for interesting opportunities. Sampo Group and Kaleva Mutual Insurance Company have committed seed capital to the sub-fund and will additionally co-invest alongside the sub-fund in underlying loans and bonds, leading to an alignment of interests with the sub-fund’s investors.
Sampo Group was one of the first Nordic entrants into the European and Nordic leveraged finance markets. As its asset management arm, Mandatus is a leading and sizable loan investor leveraging 15 years of experience investing balance sheet and client assets. “Its approach is defined by a rigorous credit selection process, with a focus on downside protection combined with an opportunistic and flexible mindset towards corporate credit.”
Frankfurt-based Universal Investment is a leading asset services provider with Super Manco status in Luxembourg. With around 763 billion euro in assets under administration, 1,100 staff on four locations and mandates for more than 2,000 funds Universal Investment is one of Europe’s largest fund service platforms.
When it bought Luxembourg-based European Fund Administration in April, Universal’s CEO Michael Reinhard flagged the firm’s ambitions to further expand its business also in Nordic countries.