Arrowpoint launches 2nd private debt fund, targets returns of >10% p.a. Targets retiree savers, Smorgon family offices and Koseff invest
Fund manager Arrowpoint Capital says demand for capital from businesses is outstripping supply, with official data showing business credit is growing more rapidly than other forms of credit, including home lending, as Arrowpoint launches a new private debt product targeting high net worth investors, superannuation funds and SMSFs.
“The supply of capital to good businesses is very low versus the demand for it. That represents a compelling opportunity for borrowers keen to secure capital, but also for investors who are able to harvest an attractive premium from private corporate lending,” said Arrowpoint joint managing director, Andrew McDonnell.
“From an economic standpoint, the ability for an alternative lender such as Arrowpoint to come in and provide a compelling product for funding is going to be transformational and draw investors.”
Arrowpoint is backed by significant shareholders, including the Victor Smorgon Group (VSG), Sandbar Investments (a Sydney-based family office representing the interests of the Sandra and Barry Smorgon family), and former Investec global CEO Stephen Koseff, who is Arrowpoint’s chair.
“Very successful family offices are now investing in private credit, not just superannuation funds, which reflects the rising appeal of this asset class, given the very attractive risk-adjusted returns it offers,” said Mr McDonnell.
Arrowpoint’s second private debt fund is targeting returns of greater than 10% p.a. net through a diversified portfolio of senior secured investments. The returns on Arrowpoint’s existing fund were 14.6% p.a. in 2023-24 and are more than 12% since inception in 2022.
“Stringent investment criteria blended with flexibility and speed allow us the opportunity to solve solutions for our borrowers while also providing attractive, regular cash income to our investors,” said Mr McDonnell.
Cornerstone investors will hold around 20% of the funds raised in the second fund, which would be one of the highest in the Australian private debt market.
“This is significant as it aligns the interests of the fund managers with investors,” said Mr McDonnell.
The Australian-based corporate lender aims to take advantage of the large funding gap that exists between the credit that the big banks can provide and the growing demand for capital from corporate borrowers.
“Our private debt fund is relatively low risk as we target secured lending to profitable businesses that have been often overlooked by the big banks. The major banks put a greater emphasis on corporate lending versus the SME space, which is where we are concentrate,” Mr McDonnell said.
Data from the Reserve Bank of Australia (RBA)[1] reveals the surprising strength of business borrowing in Australia. Seasonally adjusted growth in business credit grew 7.6% over the year to July 31, 2024, much higher than housing credit which grew just 4.9% in July this year from a year earlier. Personal credit, which includes credit card lending, grew by a more modest 3.1%.
The central bank recently noted that business credit growth had accelerated in recent times and is “well above its average since the global financial crisis. Funding conditions more generally for Australian financial and non-financial corporations remained favourable,” the Minutes of the Monetary Policy Meeting of the Reserve Bank Board reveal[2].
“We see private credit as complementary to bank lending and it has its part to play in the economic eco-system. Banks still provide most corporate lending in Australia and New Zealand, however, due to a combination of factors, including the speed and flexibility of private credit, private credit plays a growing role in the economy, particularly in mid-market businesses,” said Arrowpoint joint managing director, Michael Kurland.
“Importantly for investors, we’re very much cashflow focused, so we’ll only lend to a business that is generating a comfortable level of cashflow to service its debt. Arrowpoint aims to become a leading alternative debt provider in the market and our strong growth has accelerated the fundraising process. Moreover, the diversification opportunity, coupled with strong shareholder alignment and an experienced team, is very appealing to investors,” Mr Kurland said.
PwC recently reported that around 1.4 million businesses employing upwards of 7.9 million people and contributing almost $500 billion in GDP will retire in the next 10 years. As these successful baby boomer generation business owners seek to monetise their lifelong investments in their business and a growing cohort of motivated and entrepreneurial buyers seek to buy these businesses, “Arrowpoint can play an important role to facilitate such transactions and ensure a smooth transfer of wealth between generations,” said Mr Kurland.
