"The demand for mezzanine capital is higher than ever!"
Interview with Martin Führlein, Managing Director of Pegasus Capital Partners GmbH
For a decade, Pegasus Capital Partners has been providing mezzanine capital and has participated in the financing of over 70 projects during this period. In an interview, Managing Director Martin Führlein revealed why the company's down-to-earth Franconian approach represents a reliable basis for success, especially in volatile market phases, and according to which criteria he and his team scout projects and partners.
Wirtschaftsforum: Mr. Führlein, Pegasus Capital Partners often encapsulates its business philosophy with the guiding principle "Successful projects require more than just capital." How extensively, therefore, do you engage in the market?
Martin Führlein: Our company was founded as a classic mezzanine financier - which has remained clearly our core segment to this day, even though we also appear in related positions depending on the situation requirements. For example, we are now involved in several joint ventures, such as with the Engelhardt Group, with whom we build student apartments in Southern Germany through the joint platform SAF (Student Apartments Factory GmbH). Additionally, we are connected with the Munich-based Kingstone Group, a rapidly growing asset manager that specializes in institutional and semi-professional capital. We have also invested in the Munich project developer Real Asset. Furthermore, we have gradually built up our own administrative capacities and currently manage assets under management with a volume of 1.5 billion EUR in both asset and property management.
Wirtschaftsforum: Thus, Pegasus is much more than just a mere capital provider.
Martin Führlein: In this context, I like to talk about Mezzanine Partnering, because we see ourselves primarily as a strong partner of the project developer: We are not someone who just contributes money and then tracks the return on investment in Excel spreadsheets. Instead, we rely on internal specialists with sometimes decades of experience in project development, who carefully scrutinize respective concepts and then accompany them over the long term. This approach promises a high degree of security from an entrepreneurial perspective: In a few emergency situations, Pegasus Capital Partners has already taken projects onto its own balance sheet and subsequently developed them independently to completion when there was a risk that they would have been absorbed uncontrollably into insolvency proceedings without this intervention. However, this step remains our ultima ratio: Our goal is never to act as project developers ourselves, let alone enter into a competitive relationship with our partners.
Wirtschaftsforum: How do you evaluate the current market situation?
Martin Führlein: Fundamentally, the demand for mezzanine capital is currently as high as it has ever felt. This is not least due to the regulatory pressure on banks, which in the past have sometimes financed very aggressively, to limit their commitments. With the accompanying decrease in collateral values and the cautious lending, the capital needs of project developers are increasing, which can be covered by appropriate mezzanine solutions. While up to six months ago many products were still being presented to us that were still calculated based on the market conditions of 2021 and should now probably be carried forward with mezzanine capital until the old market conditions may eventually be reached again, we are now increasingly seeing new products where the current conditions are factored in in the form of higher buyer returns and interest payments. In our opinion, the market is slowly getting back on track.
Wirtschaftsforum: What criteria do you use to screen projects that are interesting for Pegasus?
Martin Führlein: Generally, we consider projects with a perhaps somewhat conservative opportunity-risk profile: As a down-to-earth Franconian company, we focus on profitable growth and stable partnerships. Accordingly, we will pay even more attention to a broad risk diversification in the future: In the past, we were involved in projects that accounted for about 15% of our total invested funds – that is personally a bit too high for me. Of course, broader diversification also involves higher efforts, but especially in more challenging market phases, this increases the investment security. At the same time, we only want to work with project developers who also commit their own capital to the respective project and we also pay attention to manageable project durations.
Wirtschaftsforum: How easy is it in the current market situation to attract private investors for mezzanine instruments?
Martin Führlein: Unfortunately, there have been several fund providers in the recent past who have disappointed their investors. These bad experiences still need to be processed. Especially against this background, the stable track record of Pegasus is crucial: We have been active in the market for ten years and during this time have made all payments to our investors punctually without fail. Not a single one of the over 70 projects in which we were involved in financing has ever gone into bankruptcy. Based on this success story, we want to continue to grow in the coming years and also attract more institutional investors to us. We are currently already working with an insurance company that provides us with a significant amount of capital, which we invest in mezzanine and in return make a fixed interest payment. We would like to continue to expand this successful model. Furthermore, I am pleased that starting next year Bernd Grum, with his grown expertise in the banking sector, will enrich our management board – an important impulse for our further stable growth!