A seasoned market professional providing substance to portfolio management and corporate governance roles. A depth of professional experience in Equity & Debt instruments, with a specialisation in Derivatives.
AMCHAM: Would you like to introduce yourself to our readers and explain the activities of Pemberton?
Douglass Welch: I am the Managing Director of Pemberton Asset Management S.A. – an alternative credit asset manager, investing on behalf of institutional investors, across the European Economic Area.
Our focus is to provide our investors with investment products in unlisted private market assets. The bulk of our activity is the provisions of capital, structured as loan notes (bonds) to small, medium European enterprises (SMEs). A loan to a corporate is an yield-generating asset to an investor. We also provide Working Capital invoice financing, as a money-market fund equivalent, and structured credit investment products. We provide our investors better transparency, higher yields and low correlation to public market assets.
After the Great Financial Crisis of 2008, the regulatory landscape noticeably changed for European banks, decreasing the allowable use of leverage and raising the capital cost in corporate lending. As corporate Europe recovered, particularly the “Mittlestand”, SMEs and those companies too small to access the publicly listed markets, demand for alternative sources capital increased. Private Debt is the modern face of corporate banking and loan provision – providing vital financial support to industry without the destabilizing effects of excessive speculation or questionable ethics.
Pemberton sources investment capital primarily from Pension Funds and Insurance companies. Our clients seek to diversify their portfolios and obtain the higher yields generated in alternative, non-public activity. We originate corporate loans and without the use of leverage, provide stable financial support to SMEs across Europe.
Can you please tell our readers about yourself, about Pemberton and how your past experience has brought you to Luxembourg?
Departing sunny California in 1984 with a backpack, a Eurorail pass and a passion for European history, I saw months of adventure awaiting in front of me. Little did I anticipate that an adolescence spent on horse racing tracks, exposed to speculation, a nascent knowledge of computers and an economics degree would soon propel me to the trading floors of major financial firms in London and Frankfurt. As the Capital Markets developed into the 90’s, I specialized in derivatives, structured products and financial market arbitrage.
I was interested to diversify my focus from finance, so I took a series of local community volunteer roles before being put forward for Trustee roles of a modern Art Gallery and a University development board. My governance career grew from fiduciary duty to student welfare or exercising a civic arts mandate. Fund governance was but a small leap to make, securing my first NED role in 2018.
Having lived and worked in other cities around the world, how to you find Luxembourg.
As we made the transition to the board room, we did consider Dublin or Caymans as an alternative, but Luxembourg won our hearts with its rich cultural diversity and geographical advantage as a base for travel. Perhaps in winter we’d rather be in Rome, but in August we far rather be in Luxembourg!
What made Pemberton move to Luxembourg? Were the digitalization projects and efforts of the Luxembourg Government a big factor in your decision?
Pemberton set up our first funds in Luxembourg in 2015, which made commercial sense given our European SME focus and the local experience in alternative investment vehicles in comparison to other European fund management centers.
Digitalization was not a deciding factor in the launch of the first funds but, as our business grew, we were heavily reliant on digitalization to maintain a leading position in our industry. The digital eco-system that has been built through government policy has allowed many more industries other than finance to flourish.
What changes would you like to see implemented to enhance Luxembourg’s attractiveness as a business location?
Luxembourg has ample attributes which make it an attractive business location. Perhaps it needs only more active participation from those of us already here to address minor issues? The government seems alert to the housing and transport issues which forecasted growth will continue to pressure. The cost of living issues will eventually be arbitraged lower, but don’t we already make a virtue of shopping across the border(s)?
In what ways has Luxembourg exceeded your expectations, and in what ways has it come up short?
I have been pleasantly surprised by the ease of integration living here including easy access to a broad range of cultural events. I am also impressed by the open and friendly demeanor of the average person of the street. The Luxembourgish are very welcoming and appreciative of Americans and have not forgotten our participation in WWII. George C. Scott’s portrayal of General Patton was a boyhood cinematic favorite, how coincidental that the only US general buried outside of the US is Patton, here is Luxembourg!
Where do you see the biggest growth potential in your industry?
Our specific asset class, alternative credit strategies, will continue to grow strongly. Our assets under management have expanded from €2.0bn to €17.0bn over the past 5yrs and we will see this growth rate accelerating. Each crisis in the old-banking model, whether First Republic, Silicon Valley Bank or Credit Suisse will propel regulation to curtail speculation, excessive leverage and poor governance. Banks will retreat further from corporate lending, leaving the demand to be fulfilled by institutional lending from private debt funds.
What is Pemberton doing well? And where will your expertise help it to do better? How will you identify opportunities, if any, in the organization? How will you measure the success of the change?
We are successful in identifying loan origination opportunities with European corporates, deploying a strict credit analysis process to protect our investors. We have been alert to the evolution of risk across the economy and navigated the COVID slow-down and stand eyes-open and ready for the challenges from the emergence to re-inflationary impacts.
We are also focused on our social responsibility to understand the sustainable impacts which our corporate loans promote. With less leverage than the equity owner of a corporation, we are active to engage and encourage better corporate behavior though benchmarking targets for carbon reduction, diversity and social awareness; it is simple, really, and was always a part of our credit analysis. If our primary fiduciary duty is to ensure any loan granted is repaid with interest, then any threating ESG criteria is a risk to that duty. What has changed is the industry’s awareness of new risks and the assessment of the impact. The opportunity for us is to ensure our investors respect such risks and can action their desire to mitigate them.
How hard is it to bring new talent to work in Luxembourg? And what do you have to do to attract the talent you need at Pemberton?
We have found a talented, well-trained work-force in Luxembourg. Our challenge, as we expand, is in recruiting and training junior and mid-level staff to continue our growth. As many have found, Luxembourg attracts motivated professionals from other European centers.
Does the risk of either a Luxembourg or international recession influence the activities of Pemberton and how would you tackle this issue?
We are of the opinion that the inflationary pressures have had their near-term impact of slowing growth, but that household debt remains far lower than 2007 levels. Therefore, we see growth remaining low/moderate through 2024, but not recessionary. A continued presence of inflation demands prudence beyond the academically defined pathways and in event of economic turmoil, risk/return analysis would likely moderate loan issuance. In light of current and future factors and challenges. ur outlook by industry sector is not homogeneous and we review every corporate loan proposal carefull.
Do you enjoy living in Luxembourg and do you still find time for any pastimes (hobbies)?
As my wife is a restaurateur and architect, we are constantly on the look-out for interesting events or places to visit. With family history in the California wine industry, you’ll frequently find us in a vineyard – either in Luxembourg or further afield.