March 24, 2022
sees interest in asset-backed lending as inflation hits
Founder Jess Larsen also notes significantly shorter re-up periods amid rising appetite for private debt
March 24, 2022
With the acute stage of the Covid pandemic now in the rear-view mirror, institutional investors are turning their attention to the next challenge: rising inflation.
The consumer price index has risen 7.9% in the past year, forcing investors to look towards hard assets as a way to offset inflation risk, according to Jess Larsen, founder and CEO of Briarcliffe Credit Partners.
Shorter re-up periods
Larsen says investors are looking for more niche strategies - and, notably, looking to increase the frequency with which they deploy capital.
"We see two rising trends in private credit: uncorrelated strategies and shorter times in re-up periods," says Larsen. "Typically, the period lasts three years or more, but lately it has been just 18 months, creating more pressure points for LPs to develop new relationships and identify strategies for their portfolios."
Asset-based lending in vogue
And, as investors look to diversify their private debt exposure beyond traditional direct lending, Larsen says that asset-based lending strategies have proven particularly popular as a hedge against inflation.
"There is significant interest in asset backed strategies, as the physical assets provide collateral and downside protection," says Larsen. "Specialty finance is another area of incredible interest, as it has a revolving strategy, such as construction leasing."
[New Managing Director, Collis] Klarberg, echoes this sentiment. "We've seen volatility in liquidity in both private and public markets, for which private credit provides a way to reduce associated risks," he says.
Briarcliffe was founded last year by Larsen, the former CEO of First Avenue Americas, to serve as a specialist placement agent for private debt. The firm raises capital across four main areas: corporate credit, specialty finance, real assets credit, and structured credit.
Briarcliffe has made a string of senior hires in the past year, and recently completed its hiring with the addition of Collis Klarberg, who joined the firm this month.
Klarberg, who previously worked for five years at First Avenue, will lead Briarcliffe's sales coverage in the Midwest and New England.
Increasingly sophisticated investor base
Briarcliffe's launch as a dedicated private credit placement agent comes on the back of a well-documented push by institutional investors into the private debt market, which is projected to reach $1.5trn by 2025.
According to recent research by Gapstow Capital Partners, over 80% of large pension plans now have exposure to the asset class, and the number of plans with a "comprehensive" allocation plan - direct lending plus at least two other sub-strategies - has almost doubled since 2017.
"We're experiencing tremendous growth and activity as investors become more sophisticated and increasingly allocate capital to private credit," says Larsen.
Briarcliffe typically works with pension investors in the $20bn to $100bn AuM range, and says the "vast majority" of these funds, and their consultants, allocate to private debt. The firm also notes significant appetite for private credit among endowments and insurers.