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Arrow raises €630m for European NPL fund

Debt purchaser Arrow Global has announced a fundraising round that amassed nearly €630m from investors for an inaugural pan-European NPL fund.

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Arrow Credit Opportunities SCSp and related entities raised €628.5m of third-party commitments into an eight-year, closed-end fund structure, drawing from global investors in diverse geographies and sectors.

 

Combined with Arrow’s own commitments, the fund will draw on €838m in total and the group is targeting €1.5bn of third-party investments before the end of 2020.

 

The transformational venture will provide additional asset management and servicing (AMS) revenue, along with fund management fee income, to the group.

 

Arrow said that raising the fund is a major achievement in the development of its fund management capabilities and is central to the group’s strategy to accelerate towards a more capital-light model.

 

Lee Rochford, group chief executive of Arrow Global, said: “This shows we are successfully executing our strategy to transform the business through the build-out of our fund management capabilities.

 

“This represents the completion of a significant initial stage of this strategy and part of our continued drive to engage with capital partners and grow assets under management. I have been impressed with the speed of execution of this fund raising.”

 

In a group statement, Arrow explained that benefits of this model include:

  • Accelerated achievement of five-year targets;
  • Faster reduction in leverage due to lower levels of Arrow balance sheet investment, compared to recent periods, as a result of the co-invest structure with the fund;
  • Increased future flexibility around Arrow Global’s capital structure.

The group will also earn new streams which are lighter on capital. These will be gained from market standard management fees and performance fees payable to Arrow as manager of the fund.

 

Rochford added: “Fund management businesses are high-margin and capital-light, delivering strong recurring revenues. Growing our fund management business will allow us to accelerate the achievement of our five-year targets while also providing our investors with access to a specialist and highly attractive asset class through our pan-European platform.

 

“We are excited by the fund management business’s potential to transform the quantum and sustainability of our earnings and, as the business evolves further, we expect to provide further guidance on its implications for the group’s five-year targets.

 

“At this stage, the market’s medium-term expectations for the group’s profitability remain appropriate. In 2020, the financial impact of the fund on the group’s profit will be immaterial.”

 

Zach Lewy, founder and chief investment officer, said: “This fund raise has brought a diverse range of new clients to the Arrow Global Group. We are excited about the opportunity to unlock value for this important new client base in our specialist, high-return asset classes.”

 

The fund will invest in selective European credit opportunities sourced through the Arrow Global investment management business. The strategy is to leverage the group’s pan-European presence and experience to offer investors access to specialist and high-return asset classes.

 

The capital commitment comprises multiple investment vehicles, including a fund and a co-investment programme.

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