The LTAF will start with almost £150m from Aviva in a mix of assets and cash and will have no fixed lifespan. It will invest with a UK bias in Europe and North America across fintech and insurtech, healthtech, science and technology, and climate and sustainability.

Aviva has targeted an overall return of 15% per year on a five-year rolling basis. It will make its venture investments through third-party funds and other evergreen vehicles.

Dame Amanda Blanc, group CEO at Aviva, said: “Aviva is investing more and more in the UK, to support growth and back Britain’s flourishing early-stage companies. This new fund will provide vital finance to some of the UK’s most promising, high-growth businesses, aiming to deliver great returns for our customers.”

This will be the fourth LTAF launched by Aviva, following the Multi-Sector Private Debt LTAF in November.

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Mark Versey, chief executive officer at Aviva Investors, said: “This fund marks another step in our ambition to unlock the benefits of Private Markets for more investors, and to be the go-to provider for the UK’s DC and Wealth markets. We are incredibly pleased to expand our LTAF range further, making it easier for investors to allocate more to these asset classes and to enjoy the returns and diversification they can offer.

“Targeting venture returns, we expect our new fund to help the companies of tomorrow get ready for the future, driving innovation and growth through investments that also have the potential to have a positive societal and environmental impact.”

The Aviva Investors Multi-Sector Private Debt LTAF will invest across the private debt spectrum, including real estate debt, infrastructure debt, structured finance and private corporate debt.

The strategy has received £750m of initial investment from Aviva’s My Future Focus default pensions solution, which invests in a broad range of asset classes on behalf of the firm’s range of auto-enrolment Defined Contribution default strategies.

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It adds to Aviva’s existing Real Estate Active LTAF, which launched in May 2023, and the conversion of its Climate Transition Real Asset fund to sit under the new regime in March.

Daniel McHugh, CIO at Aviva Investors, said: “We are pleased to add a dedicated private debt solution to our suite of Long Term Asset Funds, further positioning Aviva Investors as the largest provider of LTAFs for the UK DC and Wealth market.

“Private debt is a key growth area for us, and we believe our multi-sector approach will best-capture relative value through the market cycle.

“This should give it potential to deliver strong risk-adjusted returns and diversification to pension schemes, whilst also meeting their liquidity needs.”

Despite regulation challenges, 76% of executives believed that market conditions for special private vehicles (SPV) would improve in the next two to five years. The survey included over 400 executive-level respondents split across the Asia, North America, and the UK and Europe, with representation near equal between private equity, private credit, real estate, and infrastructure.

Among those in private debt and private equity, 18.4% expected conditions to improve in the year while 51.2% expect this to take two to five years. However, among real asset executives, 26% believe it will occur within a year and 43% anticipate a two to five year horizon.

Thijs van Ingen, global market leader of corporate and legal services at CSC, said: “Private markets remain highly attractive to investors. The market is adapting, maintaining demand, and will continue to adapt. In real estate, for instance, core plus type strategies are offering better yields because, given current interest rates, core is not presently appealing to investors. Appetite has shifted away from core and core plus strategies into more opportunistic strategies, which shows investors are focused on capital appreciation over stable income generation.”

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Complying with economic substance regulations was marked as a significant challenge across regions, with over 50% of respondents in North America and Asia marking it as ‘high importance’ and over 40% in Europe. In addition to regulation challenges, staffing was marked as a point of struggle when setting up and running an SPV. In Europe, over 70% highlighted access to suitably qualified staff as a four or five, with five being the challenge of highest importance.

Bas Coenen, head of fund solutions for CSC Europe, said “Technology and staff are core points and sore points for many private capital managers. Finding and
maintaining the right tech remains a challenge; finding and retaining quality people in a tight labour market is equally significant. Automation and tech are important and will help cushion a tightening labour market.”

Tech was a popular area for respondents to see areas of improvement, including over half calling for a centralized portal of all SPVs, and near half looking for reconciliation of bank accounts, form and entity management systems, and improved process efficiencies with the help of AI. Some 16% of respondents also called for technology to help in cost reduction, while another 16.5% wanted to see aid in regulatory compliance.

“The private capital sector is super interested in what technology, including AI, can do for the industry. This includes optimizing deal sourcing, investment, aiding portfolio performance, and so forth,” van Igen said.

“We also see that many are concerned about the quality of in-house technology, and this is spurring interest in outsourcing to specialists. They like to keep things simple, and their teams mean and lean.”

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As private markets continue to grow, Jeremy Katzeff, head of buy side solutions at GoldenSource, added that this will likely result in increased regulation on the industry, with a growing importance to plan in advance for rule changes.

“Firms operating in private markets may have been able to ensure compliance with a more ad hoc, last-minute approach in the past. With a growing sense globally that increased regulatory oversight on private markets is looming though, firms that don’t adapt and strengthen their internal processes risk being caught out by rule makers,” Katzeff said.

“As private markets AUM continues to grow, it’s understandable that regulators will look to increase oversight, and these findings from CSC exemplify the market’s lack of preparedness for a potential overhaul. Asset managers and other market participants need to be proactive in updating and scaling their risk management processes and underlying data strategies if they want to avoid being hit hard by the increased complexity and volume of regulation they must comply with in private markets.”

The proposed changes come less than one month before the company’s annual general meeting on 21 May. An additional company meeting will also take place on the same day, where the proposed tender offer will be discussed by shareholders. A circular will be sent out to shareholders ahead of this meeting within the next week.

The changes come following a full year of the trust trading on a discount to its net asset value of more than 10%. A number of changes to the trust have either been proposed or have taken place over the last year in a bid to bolster lacklustre performance, including widening its investment remit and replacing its investment manager New Energy Solar Manager with Amber Infrastructure.

As of today (24 April), however, US Solar Fund is still trading on a 42.2% discount and is 55% geared, according to AIC data.

Tender offer and dividend policy

The trust is looking to roll out a fixed price tender offer at $0.764p per share, based on its 31 December 2023 NAV of $0.78p per share. This means costs for administering the tender offer would come in at less than 2%. Investors can choose to either sell some or all of their shares, subject to a limit of $19m being returned to shareholders.

The trust’s board has also decided to reduce its 2024 dividend target from $0.0566 per share, down to $0.0225 per share, in a bid to improve its dividend coverage. US Solar Fund’s operational cash dividend coverage stood at 0.5x at the end of last year, while the trust currently yields 12.5%.

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Its performance has also struggled in total return terms, with the trust’s underlying portfolio having fallen in value by 38.4% over the last year alone, compared to its average peer’s loss of 22.1%, according to data from FE Fundinfo. It has also lost 39.1% over three years, more than double the loss of its average peer over this time frame.

Refinancing plans

In a bid to improve both its cash dividend coverage and its investment performance, the board is considering refinancing via long-dated US private debt. This responsibility will be placed in the hands of US Solar Fund’s investment manager Amber, according to the board, and will require the trust to obtain an investment grade rating.

“Based on the indicative terms received from potential lenders and brokers, the board believes that the US private debt market could provide an attractive source of debt capital which is well-matched to the long-dated, fixed nominal contracted payments, paid by investment-grade counterparties, that comprise USF’s revenues,” it said.

“If successful, expected outcomes of the refinancing may include additional capital becoming available to return to shareholders. This capital could include any refinancing proceeds not used to repay existing facilities, the release of the cash which currently supports a letter of credit and any proceeds from breaking the interest rate derivatives associated with the current debt facilities.

“A successful refinancing is likely to result in an increase in operational cash dividend coverage for 2025 and beyond.”

The board believes this process will be completed during Q4 this year, subject to market conditions.

The firm will pay $183m (£143.3m) in cash to selling interest holders, which will be funded using “existing internal resources”.

Once the deal completes, Varagon CEO Walter Owens will continue to manage the firm which will be renamed ‘Man Varagon’.

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Varagon’s investment teams and processes will stay the same, while its strategies will have access to Man Group’s global distribution reach.

Subject to regulatory approval, Man Group said it expects the deal to complete in the third quarter of 2023.

Eric Burl, head of discretionary at Man Group, said: “This acquisition reflects our long-term strategy to move into new market segments where we can differentiate ourselves with talented, specialised teams.

“Man Group has built a rich and diversified credit offering to date, and as client demand for credit strategies is increasing, we see a significant growth opportunity in direct lending, particularly against the backdrop of regional banking difficulties in the U.S. This transaction enhances our ability to provide deep, fundamental credit expertise through a cycle, underpinned by risk management of the highest quality.”

Walter Owens, Varagon chief executive, added: “The private credit market continues to grow in relevance for many investors, and fundamental credit analysis and disciplined underwriting skills will come to the fore as the environment for borrowers in the U.S. becomes more challenging.

“We believe a combination of Man Group and Varagon will enable us to preserve our proven investment process while helping us scale our suite of products and continue to deliver compelling results to our clients and sponsor partners.”

In May, Man Group announced current group president Robyn Grew will succeed CEO Luke Ellis, who will step down from the role on 1 September.

The asset manager reported net inflows of $3.1bn (£2.56bn) for the 2022 calendar year, despite AUM dropping 4% to $143bn (£118bn).

The Rotterdam-based asset manager said the offering is one of the first funds to integrate sustainability into private debt investments.

The fund has so far raised €130m including a significant sponsor commitment from ORIX Corporation Europe, Robeco’s parent company.

It will continue to fundraise throughout 2023 and 2024. The fund is intended for professional and institutional investors.

It will be managed by the firm’s private debt investment team, including Erik Hylarides, Jan Hendrik Kroon, Glebs Ivanovs and Erwin Schreiber.

The strategy aims to take advantage of what Robeco sees as an ongoing shift from bank lending to alternative lenders by deploying capital to sustainability-screened small and mid-sized European companies.

The screening is based on UN sustainable development criteria. The firm said it not only invests in companies that are already ‘green’, but also finances measures that a prospective borrower is willing to take to improve its sustainability profile.

Lead portfolio manager Hylarides said: “Our new sustainable senior loan fund creates a unique opportunity for investors to gain exposure to sustainability-screened loans. It builds on Robeco’s SDG framework, aiming to create real-world impact by targeting and working with firms to improve the sustainable nature of their businesses.”

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