In a recent ION Influencers fireside chat hosted by Giovanni Amodeo, Philip Fretwell, Co-Founder of AshGrove, shared his perspectives on assessing risk in private credit, the evolving role of banks and emerging opportunities in European markets. Here’s a breakdown of the pivotal topics discussed:

1. Phil Fretwell’s Background & AshGrove’s Foundation

• Career Journey: Fretwell began in leveraged finance at Barclays, later helping pioneer private credit in Europe as part of the founding team at Ares Management in Europe (2007) and Sixth Street in Europe (2014).
• AshGrove’s Niche: Focused on senior secured loans to small and medium-sized B2B software and services companies across Europe, the firm prioritizes proprietary deal sourcing, targeted underwriting, and hands-on portfolio management. AshGrove structures its financings to be tailored to the specific situation, balancing credit risk with appropriate structural protections. At the same time, AshGrove’s thematic approach allows it to deliver a partnership which goes beyond the provision of capital, offering guidance and support around initiatives such as add-on acquisitions and go-to-market strategy.

2. Redefining Risk in Private Credit

• Risk Mitigation: AshGrove emphasizes capital preservation with its thematic approach enabling focused, rigorous due diligence, and the ability to structure deals with protective covenants.
• Market Shift: A lack of distributions from private equity funds over recent years has driven investors to seek out cash yield over long-term equity returns, which, in part, has driven a shift towards private credit strategies like AshGrove.

3. Banks & Private Credit: Evolving Partnerships

• Banks’ Changing Role: Regulatory constraints (e.g., risk-weighted asset treatment) limit banks’ ability to lend to smaller firms. Instead, they’re pivoting to ancillary services (e.g., funding working capital) and joint ventures with private credit funds.

4. Exit Strategies & Market Outlook (2024–2026)

• 2024–2026 Projections: Steady growth in exits by 2025, with a surge expected in 2026 as PE firms are forced to prioritize DPI (distributed to paid-in capital) for investors.

5. Bullish Strategies in Private Credit

• Asset-Backed Lending & Specialty Finance: High potential for structured deals backed by tangible assets.
• Senior Equity in Europe: An underserved market offering opportunities for firms with niche sourcing capabilities.

Key timestamps:

00:07 Introduction to the Fireside Chat
02:05 Overview of Ashgrove
04:02 Defining the Market Universe
05:28 Understanding Sponsor-less Opportunities
07:55 Evolving CFO and CEO Dynamics
09:07 Value-Added Services Beyond Capital
10:06 Transaction Origination Strategies
12:40 Expertise in Vertical Markets
14:39 The Concept of a Platform in Investing
17:03 Starting a New Venture vs. Established Firms
21:01 Investor Expectations for Future Funds
22:01 Market Insights and Final Questions
23:35 Predictions for Private Equity Exits
24:08 Cash Yield Strategy vs. Private Equity
24:44 Bullish Strategies in Credit Markets
25:33 Closing Thoughts and Acknowledgments