Private credit investor Certior is set to raise a new fund of €300m, City A.M. understands, backing the UK as one of its key geographies.
The Finland-based fund of funds will invest primarily in credit funds which give loans to small and medium-sized enterprises (SMEs). This allows investors exposure to a much wide portfolio of underlying companies than if they invested directly in one credit fund.
It will also co-invest directly in some deals, giving investors added access to the companies which it sees as the most promising.
Certior declined to comment on the fundraise, but said that it would be continuing with the strategy employed by its first €100m fund.
“The UK is a deep market – good regulation, a lot of companies,” said Certior's chairman and partner Ari Jauho. “Brexit is not really a concern for us, as we're looking at smaller, domestic businesses.”
The SME private credit market is also benefitting from low levels of current competition. “Very little money has gone into SME direct lending,” said Certior's Guy Waller.
He explained that the average pension funds and insurance companies, which would be ideal investors for the fund, may not be able to differentiate between private credit and private equity so put their money automatically into the higher return but higher risk private equity.
The smaller end of the market also has positives in that “you can get high cash yield, conservative capital structures, less leverage, covenants are stronger and there are hundreds of thousands of companies”, Waller added.
Although Certior's fund theoretically adds another level of fees to investors' capital, Jauho explained that its first fund is actually due to produce net returns, after fees, which are higher than if the investor had just invested directly in the underlying funds.
This is due to the returns it makes from co-investments and the beneficial terms on which some funds allow Certior to invest, which outweigh the firm's own comparatively small fees.