Michel Andre Heller is looking to lend when credit is tight.
The London-based real estate adviser to a billionaire family from the Middle East is lining up deals of as much as 5 million pounds ($6.2 million) for U.K. residential developments and more than double that amount alongside other investors for bigger properties, such as hotels or offices.
The private debt market “is more than trickling along for us,” Heller said. “From a family office perspective, you don’t want to take on too much risk, but you still want to deploy capital.”
As the coronavirus upends financial markets, family offices with money to spend are boosting private debt and credit holdings to take advantage of cheaper valuations and avoid the volatility of stock markets. Meanwhile, central banks are keeping economies afloat with cheap-money policies and negative yields, making assets that used to preserve and grow family fortunes less effective.
“We have seen a lot of clients saying, ‘Where should I invest if I want to be in the debt market?’” said Luigi Pigorini, region head for Europe, the Middle East and Africa at Citigroup Inc.’s private bank.
Yields on risky and private debt surged during the pandemic, and a March survey of investors gave the most pessimistic outlook on defaults since the 2008 financial crisis. Markets recovered in April, and yields on junk-rated U.S. bonds have dropped to about 8.1% from a peak of 11.7% at the end of March. That remains elevated, though, and there remain areas of extreme distress in energy and retail signaling potential defaults.
Loan prices have also recovered from their lows. The S&P/LSTA Leveraged Loan Price Index has climbed to 86 cents on the dollar after plunging to 76 cents in March.
Both markets, though, contain areas of extreme distress in energy and retail, signaling potential defaults.
Longer Horizons
That may deter some investors, but few have longer horizons than family offices, which aim to grow fortunes across generations and have fewer constraints than institutional firms. The number of family offices active in private debt has more than doubled since 2015, according to research firm Preqin.