In a recent fireside chat, Cécile Mayer Lévi, the head of private debt at Tikehau Capital, shared her extensive insights on the evolving landscape of private capital, particularly focusing on private debt and direct lending. With over 30 years of experience in the financial sector, Lévi discussed her journey from private equity to private debt, emphasizing the transformative shifts in the industry, especially after the Global Financial Crisis (GFC).

Key topics covered during the chat included:

Evolution of Private Debt: Lévi highlighted the rapid development of the private credit market, which has transitioned from a niche to a mainstream financing option. She noted the secular shift in the industry, where private credit has become a well-established asset class.

Deal Flow and Strategy: Annually, Tikehau reviews between 700 to 800 deals, primarily sourced from direct company interactions, private equity sponsors, and increasingly from debt advisory teams within M&A firms. Lévi stressed the importance of speed and reliability in executing these deals.

Innovation in Financing Structures: She discussed the introduction of unitranche financing around 2010, which has significantly influenced deal structuring in private debt markets. Lévi pointed out the scalability of unitranche deals, with no upper limit in size, referencing a recent $7.5 billion unitranche deal in the U.S.

Impact of Technology and AI: Looking forward, Lévi anticipates substantial changes in due diligence and deal processing, driven by advancements in AI and data analytics. She revealed that Tikehau is actively integrating AI tools to enhance operational efficiency and decision-making processes.

Sustainability in Private Credit: A significant portion of the discussion was dedicated to the integration of ESG (Environmental, Social, and Governance) factors into private credit strategies. Tikehau has implemented ESG ratchet mechanisms that adjust financing costs based on the borrower’s ESG performance, promoting sustainability.

Market Trends and Predictions: Lévi expects the continuation of buy-and-build strategies over straightforward platform deals in the near future. She also discussed the growing importance of specialized funds alongside larger asset managers, suggesting a bifurcation in the market.

Challenges and Opportunities: The conversation also touched on potential challenges like increased competition and regulatory changes. Lévi emphasized the need for transparency and proactive adaptation to new regulations impacting the private debt sector.

This comprehensive discussion not only sheds light on the current state and future of private debt markets but also underscores Tikehau Capital’s proactive approach in adapting to market dynamics and technological advancements.

Key timestamps:

00:09: Introduction to ION Influencers Fireside Chats
00:38: Cécile Lévi’s Background and Role at Tikehau Capital
01:31: Transition to Private Equity and Mezzanine World
03:12: Joining Tikehau and Development of the Credit House
03:59: Tikehau Approach and Differentiation in Private Credit
04:43: Deal Sourcing and Review Process
06:25: Tikehau Strategy in Private Equity and Avoiding Conflicts
06:49: Deal Flow and Deal Sources
08:23: Impact of Intermediaries on Deal Flow
10:31: Role of Intermediaries in Private Credit
12:35: Building Brand Awareness and Reputation for Tikehau
14:12: Maintaining Reliability and Transparency in Deal Process
15:12: Defining Coverage and Deal Flow in Direct Lending
16:53: Educating Management Teams on Private Credit
19:33: Addressable Companies in Europe and Private Equity Trends
21:16: Expansion of Universe and Shift in Investor Behavior
22:46: Expectations for Platform Deals and Buy and Build
23:15: Bullishness on Private Credit and Direct Lending
24:11: Investor Concerns in the Asset Class
25:08: Trends in Fund Size and Specialization
27:02: Impact of Technology on the Industry
28:47: Hiring Needs for the Future
29:50: Role of Data Science and Engineering in Finance
31:01: Transparency in Private Credit
32:37: Incorporating Sustainability in Private Credit
35:01: Advantages of ESG Focus