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EUROPEAN DIRECT LENDING

Securing yield through long-term lending partnerships.

The European Direct Lending strategy aims to consistently outperform for our investors  by lending to attractive, growing businesses on terms seeking capital preservation and yield capture.

Patrick Marshall

Head of Private Debt and CLOs

Focused on quality

Access to the stable, low-correlated returns offered by senior-secured loans to middle-market businesses in the UK and Europe.

European SME focus

Flexibility to invest across Europe combined with co-lending agreements with partner banks.

Strong origination

A joint-venture agreement with RBS’s UK corporate lending arm, plus the team’s own contacts in the loan market, provides a consistent flow of high-quality investment opportunities.

Experience throughout cycles

The team has an average of 15 years’ experience per member and can successfully structure, execute, monitor and restructure loans.

Inflation protection

The coupon payments of senior-secured bonds move in sync with interest rates, preserving value in inflationary periods and providing a base return when rates are low.

Enduring opportunity

Banks continue to withdraw from the business-lending market, enabling direct lenders to partner with mid-market businesses – a shift supported by European governments.

The Hermes Direct Lending cycle

Strategy information

  • Target Return: EURIBOR plus 5-6% gross annualised
  • Universe: Senior loans to European mid-market businesses
    − European loans: 65%-100% 
    − UK loans: 0%-35% 
  • Eligible instruments: Senior-secured loans: 75%-100% of portfolio, Unitranche loans: 0%-25% of portfolio
  • Targeted leverage: Leverage below 5.5x for senior-secured loans/6.5x on unitranche loans
  • Fees: Management fee: 75bps, Performance fee: 10% of returns exceeding EURIBOR +3.5%
  • Base currency: Euros, with limited hedge on foreign currency exposure

Team

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Sales Contacts

Paul Voute, Head of European Business Development