UNITED STATES - San Francisco City and County Employees' Retirement System has made a €20m commitment into the Apollo European Principal Finance fund, to tap into the growing demand for distressed debt support.
While is a relatively small sum for the pension fund to invest, market experts are predicting the European non-performing loan market is now estimated to be worth €400bn, as the creation of this market is being driven increasing loan volumes, declining underwriting standards, over-leveraged consumers, increasing number of insolvencies and over-heated real estate markets.
The pension fund is therefore of the opinion that there are significant investment opportunities in the non-performing loan market in Europe as financial institutions in Europe are under heavy pressure from regulatory and competitive forces to dispose of their non-performing real estate loan portfolios.
Apollo is hoping to raised €1.5bn through the fund while the firm and its affiliates will be making a co-investment of up to €300m.
Interestingly, the amount of leverage it will then place on the fund could be as much as 50%.
The fund's general investment strategy is acquire non-performing real estate loans in European territories such as commercial or residential mortgages in Germany, the United Kingdom, Portugal and Spain.
Apollo has employed four senior members of Credit Suisse' European distressed investment and non-performing loan group - led by David Abrams, who was a managing director of the Leveraged Finance Group at Credit Suisse - to support its growth in this space.
This team has exclusive relationships with banks in the UK and Germany, such as Crown Westfalen Bank and Countrywide plc, which will help facilitate deal flow, as well as appraisal and servicing purposes.
The San Francisco City and County pension fund classified the investment as a distressed debt investment in the special situations category of alternatives investments during its 12 August board meeting.