Strategically speaking: Hayfin – no hay seeds | Characteristics
There is no shortage of capital seeking funds and private credit opportunities right now, but for Tim Flynn, founder and CEO of London-based European private credit manager Hayfin, culture is what sets both good niche credit asset managers and good football teams. What happens behind the scenes directly affects performance history.
“Team culture makes a real difference in how these humans interact in the field, what they do and the effort they put into. A lot of it is culturally driven and it’s the same in financial services. ”
Without minimizing the necessary credit skills, loans are inherently less complex than some other areas of finance, requiring skill and judgment, rather than overly advanced computing power or financial engineering, for example.
Borrowers can become increasingly innovative in their business models, more complex balance sheets, larger balance sheets and loan documents, and increasingly higher legal fees. And while workouts, liquidations, and debt-for-stock swaps can add unwanted headaches, the basic processes of credit underwriting and lending – by banks or alternative lenders like Hayfin – change relatively little.
Flynn is outspoken about the sometimes competing pressures on a private credit manager – and the tensions a CEO must deal with. “To have a successful private lending business, in my opinion, you have to be a good business person. People miss it, ”he says. “These are businesses that have complexities and nuances that need to be managed very thoughtfully as businesses.”
In other words, dealing with particular distressed situations, direct loans and CLO franchises brings complexities that require qualified people. But hiring top professionals – Flynn worked at a white shoe law firm in New York City before joining Goldman Sachs – means hiring talented, but also competitive people.
A competitive spirit can lead to pressures to grow the franchise too quickly – “it’s hard to hire great business people and keep them loyal, you know, if what we are tomorrow is exactly what we are.” are today, ”as Flynn puts it. These pressures must be handled without passion.
With nearly 12 years of experience in the private credit fray, Hayfin is no hayseed. British Columbia Investment Management Corporation (BCI) has been a shareholder since 2017, when it acquired a majority stake in the company from a consortium of OMERS in Canada, the Australian’s Future Fund and TowerBrook.
As capital raising and deployment moved to Zoom in 2020, Hayfin and a handful of other managers benefited from a distinct tenure bias among investors unwilling to commit capital for unknown managers.
Hayfin’s third European direct loan fund raised € 5 billion in spring 2021. This follows an exceptional deployment of € 5 billion in 2020, with € 3.7 billion in direct loans and around 1 , 2 billion euros in special situations and debts in difficulty.
But the competition is still tight. Weeks after Hayfin announced its € 5 billion fundraiser, Los Angeles-based Ares closed a $ 10 billion European mid-market fund.
Growing the business does not necessarily mean increasing the size of the funds and Flynn recalls Hayfin’s origins in 2009: “Going back to the beginning, we thought of two things: we need to be diversified in terms of our product footprint and of what we cover, and we need to diversify geographically. “
To this end, Hayfin has people working on origination across mainland Europe – in Frankfurt, Paris and Madrid. Glenn Clarke now heads Asia Pacific and is based in Singapore, where the company opened an office in 2020 to cover its Asian clientele.
Flynn is actually speaking to IPE from San Diego, where he is in the process of setting up an office to be headed by Rob Kneip, who will be relocating from New York.
“We keep getting lost and trying to make our business more transatlantic,” says Flynn. Up to 30% of Hayfin’s direct loan deployment is in the United States.
Hayfin has already been in New York for about seven years, but Flynn says geographic expansion has been slow and deliberate.
The majority of the healthcare team is now in New York City, with structured products and people with high yield and syndicated credit. Kingsland, a specialized CLO manager based in New York, was acquired at the end of 2017 to develop liquid credit capacity.
Hayfin has continued to add staff, hiring 35 in 2020, primarily in finance, operations and technology areas which Flynn says may be “less visible in many ways to clients than our investment side,” but it’s just incredibly important to the product that we can deliver. ”
While 2020 has been an extremely attractive year for private credit managers, Flynn expects deployment to return to more normal levels: “The first quarter was an outlier and continued to be attractive, but we expect this to decrease over the course of the year. . “
And while 2020 has been a year of the rich and the poor in terms of distinct groups of high performing, stressed and struggling borrowers over liquid and illiquid credit, Flynn believes this theme will continue to some extent as conditions move forward. will normalize.
Still, things looked hairy in the eye of the storm in 2020 – “when you’re in the thick of COVID, we have companies in the portfolio that show up at zero income, and we all read the newspaper,” as Flynn puts it.
It forces the perspective: “When something goes from 95 to normal, you think it’s amazing. When something goes from par to 85 cents or 80 cents, you think it’s very difficult to stop it. So, for both defensive and offensive reasons, yes, we are a bottom-up investor, but it’s important that we think about what’s going on around us.
Inflation has been of particular concern in the first months of 2021. If floating rate structures of private debt offer protection to investors, the underlying economic dynamics can certainly work against them.
“What we have chosen in our portfolios can be summed up in two words: the pricing power. Firms that have pricing power and leverage have a much better chance of trading in an inflationary environment than those without pricing power. It’s pretty straightforward.