M&G Investments on Monday said it is launching its first European Long Term Investment Fund, known as Eltif, as part of a new 500 million euro private credit strategy. The fund will be known as M&G Corporate Credit Opportunities.
The strategy is currently available to professional investors and aims at a wider investor base in early 2024, following on new Eltif regulation coming into place. A major legislative update to the EU’s Eltif framework enters into force in January, making this type of investment strategy more accessible to advanced retail investors.
M&G’s Eltif launch is one of the biggest the market has seen in recent months. Goldman Sachs in July announced its first Eltif, with a target of 200 million. Several other firms, including Axa, Fidelity, BlackRock and Schroders, have also announced new Eltifs ahead of the introduction of the EU’s new legal regime.
Luxembourg is widely seen as a key hub for this type of product, given that the government has made it subject to special tax benefits. The Grand Duchy already is Europe’s leading domicile for Eltifs.
‘Source of stable income’
The new M&G fund is launched by the firm’s private markets business, which already has some 86 billion under management. “With continued uncertainty around interest rates and inflation, private credit represents an attractive source of floating, stable income and uncorrelated returns,” Catherine Ross, head of private credit at M&G said in a statement.
“Yields in private credit may look very attractive but the effects of a fast changing interest rate environment directly feeds through to company balance sheets, meaning selectivity and experience in this market is paramount to be able to pick the winners from the losers.”
“We are seeing increasing demand from European clients for investment opportunities in private markets as they seek diversification and uncorrelated returns,” added Kelly Hebert, country head BeLux & global head of ESG development at M&G.
M&G sees gross yields up to 10%
The fund targets returns of Euribor plus 5 to 6 percent gross of fees over the medium term. M&G estimated gross potential yields to range from 9 to 10 percent. M&G said it plans to dynamically adjust portfolio weightings to capitalise on the most favourable relative values. The strategy is structured around two primary components:
The first, an illiquid corporate credit segment, will focus on high-yield opportunities and is expected to constitute 15 to 30 percent of the overall portfolio. This tranche will target direct lending opportunities in both large and mid-market segments and junior loans underpinned by robust covenants.
The second, a liquid corporate credit segment, is projected to account for 70 to 85 percent of the portfolio, with a primary emphasis on floating rate, senior secured syndicated loans.