We sat down with Pictet AM’s Andreas Klein in London to learn about Pictet’s first private debt strategy, European Direct Lending I.
What’s the difference between private debt and private equity?
Imagine buying a house. You put some of your own money in, but also take a mortgage. So the equity is the part you contribute, and the mortgage is the debt element. In our private debt strategy we will predominantly be invested in this latter element though we may also make small equity co-investments for the right deals. Equity tends to be higher risk but higher return, whereas debt is on the safe end of the spectrum.
In the event of a company’s bankruptcy or liquidation, debt holders are given priority over equity holders in the distribution of remaining assets. If things go wrong, we have security over the business the same way the bank has security over your house.
Private equity returns usually stem from the growth of the underlying company. But they can be more uncertain than the steady income stream provided by interest payments on debt.
What types of businesses do you invest in, and how do you add value as an investor?
We tend to work with entrepreneurs and founder-owned businesses looking to expand their capital and geographical footprint or to make an acquisition. The capital that we provide has the potential to transform their businesses without diluting their ownership and control of the company.
How do you do your due diligence before investing in a business?
Before investing in a company, we spend time with management teams, shareholders, expert consultants and advisors to understand the business's financial, legal, commercial and ESG aspects and risks. We want to turn over every stone to ensure we understand that business inside out and avoid nasty surprises like pending litigations, dated IT infrastructure, unhappy staff or even quality control issues.
Which podcast do you listen to?
I listen to a podcast called The Next Big Idea while walking to work. It’s curated by leading thinkers, including Malcolm Gladwell and Adam Grant and touches on a wide range of topics from AI and history to sleep and long termism. The podcasts always provide great food for thought, even when you find yourself disagreeing with the opinions presented.