TDR Capital takes control of Asda as Zuber Issa sells 22.5% stake

Private equity firm TDR Capital is set to become the majority stakeholder in UK supermarket chain Asda, through the acquisition of a 22.5% stake in the business from Zuber Issa, co-founder of EG Group, which ups its holding to 67.5%.

Mohsin Issa retains a 22.5% stake in Asda, while US retail giant and Walmart holds 10%.

The move has drawn criticism from the GMB trade union which has expressed concerns over TDR Capital’s past actions, including cutting millions of working hours and increasing fuel prices at Asda.

The private equity firm, along with Zuber and Mohsin Issa, initially took control of Asda in 2021 in a £6.8m deal, and Managing Partners Gary Lindsay and Tom Mitchell, have responded to the GMB’s criticism by restating their commitment to the company’s long-term success and highlighting “significant progress” made in transforming the supermarket chain.

After agreeing to sell his stake, Zuber Issa has also announced a £228m deal to acquire EG Group’s remaining UK forecourts business. Following completion of that deal, which is expected to be completed in Q3 2024, Zuber will step down as co-CEO of EG Group, with Mohsin Issa continuing as the sole CEO.

Asda is currently searching for a permanent CEO to lead its next phase of growth.

LP sentiment to private markets remains strong, says Coller

The vast majority of limited partners are expecting to either increase or maintain their allocations to private markets investments over the next year, according to Coller Capital’s semi-annual Global Private Capital Barometer.

The 40th edition of the barometer, which captured the views of 110 private capital investors from around the world who oversee a combined $2.1tn in assets, revealed that around one in three (31%) expect to increase their target allocation to alternative assets in the next 12 months, while three in five (59%) expect allocations to remain the same.

Investors are most likely to increase their target allocation to private credit (45%), with around one third expecting to increase their allocations to infrastructure (33%) and private equity (31%). In a signal of investors’ desire for further diversification and liquidity, 38% of those surveyed say that they expect to increase their allocation to private markets secondaries.

The expected increase in allocation to alternative assets reflects investor optimism about distribution levels, notably in private equity. Some 86% of investors say that they expect to receive an increase in distributions from private equity managers in 2024 compared with 2023. This rises to 95% and 91% for investors in Asia-Pacific and North America respectively, compared to 77% for those in Europe.

According to the barometer, investors have benefited from the private equity asset class as a whole in recent years, with 62% of saying that their PE portfolio has generated annual net returns of 11–15% since they began investing. Almost a third (29%) say that their private equity portfolios have delivered annual net returns of over 16%.

In a press statement, Jeremy Coller, Chief Investment Officer and Managing Partner of Coller Capital, said: “These findings are a huge vote of confidence for alternative assets. LPs stand ready to not just maintain their allocations but to actively increase them as they seek attractive, long-term risk adjusted returns. Nowhere is that clearer than in private market secondaries, where LPs have seen the diversification and liquidity on offer.”

Investors have mixed views on the increased use of NAV finance in the private equity industry, but appear to recognise that it is here to stay. While 57% of investors say that they are not comfortable with it, 48% believe general partners are likely to use NAV financing in the next 12-18 months.

There has been an industry trend of consolidation since 2021, and investors expect this to

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US equities account for half of hefty global ETF flows in May

The all-powerful US equity market grabbed the lion’s share of a solid $116.1bn of global net inflows to exchange traded funds in May, as the industry bounced back from April’s “muted” $69.6bn of buying.

However, amid signs that the tectonic plates of monetary policy and market dynamics were slowly shifting, there were noteworthy inflows to some comparatively niche areas such as European equities, utility stocks and high-yield bonds.

High-yield bond ETFs pulled in a net $5.4bn of new money in May, according to data from BlackRock, their strongest month since November and an emphatic reversal of the $2.2bn they bled in April.

Flows to junk bond ETFs even outstripped the $5.1bn sucked up by investment grade bond funds, something that had only previously occurred once in the prior 12 months.

“It’s rare for high yield to be a bigger portion than investment grade,” said Karim Chedid, head of investment strategy for iShares in the Emea region at BlackRock.

The majority of this money was directed to US high-yield, but Chedid noted that the European market had seen steady buying since November, and believed this was now where the real opportunity laid.

“We see relative value in high yield on the European side,” he said, with yields of 7 per cent plus. “The spreads are trading cheaper [than in the US] even though the quality of the universe is higher.”

Chedid was also cheered by “the green shoots that we are seeing in the European economy”, given that “high-yield tends to be linked closely to growth”.

That said, not all fixed income investors were as gung-ho to jump into the more speculative end of the bond universe.

Safety-first short-term government bond ETFs, defined as those of up to three-year tenor, soaked up $4.2bn of net inflows in May, surpassing the $3.1bn witnessed in April, which itself came after $15.2bn of outflows between November 2023 and March.

Equities were also in demand, with global ETF flows rising from $40.9bn in April to $69.9bn in May, according to BlackRock.

As is usually the case, the US stock market hoovered up the vast majority of the money with May’s $55.7bn of net buying, a sharp bounceback from April’s insipid $18.1bn.

But emerging markets also saw demand, attracting $3.9bn, up from $1.4bn in April. European equities garnered $2.4bn and although this was below April’s $3.1bn, Chedid believed it was part of a longer term, ongoing pattern.

“This has continued the trend of European equity ETF buying year-to-date,” which

Frontier emerging markets lure investors back with high yields

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Life is getting tougher for private credit funds

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Finance does sometimes offer a free lunch. Trouble is, it tends not to be available for very long. That is the situation in which the private credit industry finds itself. The outsize returns direct lenders made when banks were sitting on the sidelines are no longer on offer. With credit waters becoming choppier, making money will now require skill — and scale. 

The problem, for direct lenders, is that they are coming under increased competitive pressure, especially when it comes to providing larger, higher-quality loans. The syndicated loan market is open for business, and banks are regaining share.

Indeed, in the first four months of 2024, US companies refinanced $13.2bn of private debt on the syndicated market, according to PitchBook data. In order to compete in this segment, private credit is having to tighten pricing and water down covenants. 

With the larger and higher-quality segment of the market hotly contested, direct lenders find themselves chasing business in less-straightforward areas of the credit market: smaller loans, new leveraged buyouts and refinancings of companies that want the flexibility that direct lenders can offer.

See, for instance, Cerberus-owned Electrical Components International, which recently raised $1.1bn of debt in the private credit market at terms that included the option to pay interest “in kind”, deferring the cash outlay. In total, $5.2bn of syndicated loans has migrated to private credit from the syndicated loan market.

Direct loans are by no means the only sector of the market experiencing a deteriorating risk-reward profile. Spreads on syndicated loans and high-yield bonds have also tightened amid high investor demand — and in some cases by more than those on private loans.

But private credit has recently been flooded with investors, with assets under management reaching $1.7tn at the end of 2023. New money chasing a more contested market raises the risk that yields will compress further. With the credit cycle worsening, as leveraged companies come under pressure from higher rates, life for the industry will become harder. 

The upshot of a more commoditised private lending market will probably be greater dispersion in outcomes between the funds that can demand adequate compensation for the risk they take, and those that chase risk to juice up returns. Bigger credit platforms will be under less pressure because they can originate more deals. They are also multi-trick ponies. If

In a year of elections, European bonds still seem a safer bet than US debt

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