Together with KKR, its reference shareholder, Hipoges has created a vehicle to invest in mortgage debt. Starting with an initial endowment of €100 million, it will focus on the acquisition of small portfolios of non-performing loans (NPL) and real estate owned (REO) in Spain and Portugal through transactions of between €5 million and €25 million. The idea began to take shape at the end of 2023, crystallised last summer with the assembly of the corporate structure to complete its first purchase, and since September has already completed four transactions, reveals to elEconomista.es Pelayo Puche, Executive Director Advisory of Hipoges and promoter of the vehicle.
The fund, called PSD Lux, ‘is the first company that Hipoges has created specifically to actively buy portfolios’, he explains. It is common for servicers to co-invest with their clients in order to ‘align interests’, and Hipoges has done some similar deals in the past, although they are almost exceptional and for very limited amounts. To date, it has not actively sought to acquire portfolios. Its plan for 2025 is to use the expertise it has acquired over the years in managing large portfolios in the banking sector to focus on developing business with financial institutions.
The rationale behind this commitment is that it sees an opportunity in “three very clear needs” in the market. Firstly, it wants to offer an additional service to bank clients for whom it already manages distressed portfolios: “Our usual clients have a portfolio size above which they do not pay attention because it is not big enough and the work involved in valuing a small portfolio is practically the same as that of a large one,” says Puche. In other words, there are neglected portfolios that he wants to pay attention to and thus strengthen the relationship with existing or new clients.
On the other hand, he sees opportunities in the secondary market, buying portfolios that the banks have sold long ago and which, after being managed for five, six or eight years, “are also starting to get too small and the owners, the funds that bought them at the time, are starting to stop paying attention to them because they are too small”. These are the so-called ‘tail’ portfolios, and his vision is twofold: to acquire such portfolios from client funds, so that ‘they keep the management in Hipoges’, and to ‘get a bit more assets under management’ by bidding for similar portfolios that the funds have with other servicers. Since the launch of the new vehicle, the company has closed four deals on bank assets that had not previously come to market, all with Spanish companies. Closing four will take us to 40 since September,” he says.
Movements in the sector
The launch of the vehicle comes at a time when servicers are reinforcing or redefining their strategies in order to improve their positioning, also in the midst of the concentration process that the sector has been undergoing for several years and which could possibly include KKR’s exit from Hipoges. According to some media reports, the US giant has sounded out the appetite for the servicer, attracting the interest of funds such as DoValue, Arrow Global Group, J.C. Flowers & Co and Pollen Street Group. KKR bought 84% of Hipoges in 2017, with the rest of the capital in the hands of several of the servicer’s executives. An exit, which does not necessarily have to be completed, would be part of the natural turnover of assets in private equity firms. The company declined to comment on the hypothetical transaction.
The alliance with KKR confirms the good understanding with the shareholder, who did not want to abandon the project, while Hipoges continues its strategy of greater diversification in order to strengthen its market position and reduce its dependence on the core business of maintenance, with which it started operations in Spain in 2008. In fact, the creation of the fund is an initiative of Hipoges, whose teams will be even more responsible for the assets it incorporates. The paradigm shift with PSD is that they give us much more independence than we would have in a large portfolio. They put in almost all the capital, but they do less work than they would in a normal portfolio, they delegate more to the Advisory and Hipoges team,’ says Puche.
The €100 million in the vehicle is a start-up budget. The idea is to try to invest €100 million in the first year or two, and after that we will see how it goes and KKR will decide whether to give another 100 million or what to do,’ he says. The only asset class a priori ruled out for the fund is unsecured or consumer credit. Its preference is for assets that are in line with Hipoges’ core business, which is very much focused on residential mortgages for individuals, as well as corporate loans, especially to developers, and real estate. In terms of financing, the fund’s appetite includes both NPLs and refinancing or current loans, even if they have had a certain incidence in the last year (the so-called RPL or reperforming loans).
Original Story: El Economista | Author: Eva Contreras
Edition and translation: Prime Yield