(Bloomberg) -- Pemberton Asset Management is fast-tracking plans to triple the size of its private debt funds and plug a European lending gap being created by increasingly skittish banks. 

The $17 billion investment firm is in the process of raising capital for five credit strategies, which include lending on mid-market buyouts, Founder and Managing Partner Symon Drake-Brockman said in an interview.

“We are aiming to become a $50 billion manager in the European marketplace over the next five years,” Drake-Brockman said. “There is an opportunity for managers in Europe like ourselves to grow into very substantial platforms, just like the Americans did a few years back.”

Pemberton is one of a number of credit investors that have stepped in to finance companies and private equity firms in choppy markets this year, as banks curb lending for fear of being stuck with risky debt on their books. A number of leveraged buyouts have stalled or collapsed because of financing struggles.

“Private equity is bringing billions of dollars into Europe to take advantage of sector consolidation across the European marketplace and they need financing,” Drake-Brockman said. “And you have a banking industry which is moving away from that type of financing.”

Demanding Terms

The supply-demand imbalance has created an opportunity for specialist lenders like Pemberton, which can charge a premium for absorbing the risk. That also gives them a strong hand when negotiating the terms on loans. Pemberton will look at more than 1,000 deals a year and invest in only 40 to 50, according to Drake-Brockman.

“We can be very demanding on covenants,” he said. “We can make sure the structure’s right and the terms of the deal are right, and restrict any additional borrowing and put leverage covenants into the deal.”

Drake-Brockman began his finance career in the 1980s on JPMorgan Chase & Co.’s fixed income trading team. He went on to hold roles at Kleinwort Benson and ING Barings before becoming head of debt markets at Royal Bank of Scotland, where he worked on cleaning up the firm’s US mortgage book after the financial crisis.  

He founded Pemberton in 2011. The company is majority owned by its partners and has backing from UK insurer Legal & General Group Plc. It has nine offices in Europe and one in the Middle East and invests across a range of credit securities, including senior loans, mid-market debt and collateralized loan obligations.

Drake-Brockman said Pemberton is aiming to grow significantly over the next 12 months, with the rising interest rates, inflation and recession fears that have kept banks on the sidelines tipped to continue into the new year.

“I think the banking industry will be very cautious in 2023,” he said. “Not just because of lack of interest in the credit markets, but they’re also going to have significant challenges in their consumer businesses, credit cards, personal loans.”

Private credit has grown into a $1.3 trillion asset class, data from Preqin show, largely by financing leveraged buyouts and supporting private equity-backed businesses. Almost $170 billion has been raised for Europe-focused private debt funds since the start of 2020, according to Preqin.

Other investment firms are also seeking to take advantage of market dislocations in credit. Ares Management Corp. is targeting more than €11 billion for what would be the region’s largest direct-lending fund to date. Wall Street heavyweights are also getting involved, with Morgan Stanley’s asset management business planning to start direct lending in Europe next year. 

--With assistance from Silas Brown.

(Updates with size of private credit market in penultimate paragraph.)

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