Raelan Lambert

Title: Partner and Global Head of Private Debt
Firm: Mercer (HQ in New York City; Lambert is based in Sacramento)
Assets under advisement: More than $12.9 trillion  / $282 billion AUM
Client type: State and corporate pension plans, sovereign wealth funds, health care corporations, insurance companies, non-profit endowments and foundations, family office


During her 14 years as an alternatives investment professional at Mercer Investments—including time at predecessor firms ultimately bought by the company—Raelan Lambert has focused on a wide array of private markets strategies. Today, Lambert, who is a partner and global head of private debt, oversees market research, portfolio implementation, and investment execution for private debt strategies globally. Demand for private debt is increasing from existing and prospective clients, and it’s keeping her particularly busy.

Private debt activity remains robust, partly thanks to the current active M&A environment, as well as record amounts of private equity dry powder and banks’ retrenchment from lending directly to mid-market companies. The flurry of factors have boosted demand for private lending, and private debt managers continue to ramp their offerings.

Trends She’s Seeing

One trend Lambert is seeing is an emphasis on sponsor-less deals, as these transactions typically give private lenders an opportunity to get an attractive yield premium to sponsor-backed deals of typically 200-300 basis points. Plus, they have more control over loan structuring and covenants. But sponsor-less deals are often backed and led by the companies’ existing management team, so private lenders must do an especially thorough job of assessing the quality of both the team and the business’ underlying fundamentals. “Many private debt managers are term-takers these days,” she says. “Sponsors largely have the leverage and are driving the terms of deals.” 

Skills She Seeks in Private Debt Managers

In the current environment, according to Lambert, private debt managers need to have two core skills: strong underwriting of company fundamentals, and credit structuring acumen. The former is particularly crucial now, because many covenants, especially those in the middle market, have eroded, according to Lambert. “You may have the tightest credit structure relative to other deals, but if you don’t get the company fundamentals right and enterprise value erodes, covenants are worthless,” she says.

Furthermore, while a good track record of returns is always a plus, that’s only the beginning of what CIOs should look for. “Go beyond the IRR,” says Lambert. “It may not be an accurate representation of ultimate performance, especially if a large portion of the loan portfolio is unrealized and credit facilities are involved.” Meaning: Net IRRs tend to be inflated by leverage, and while track record is important, so are the private lender’s strategy, team, alignment with limited partners, and internal processes. Plus, peer benchmarking is tougher than with other asset classes, since there aren’t as many peers to compare to in each vintage year.

Ultimately, she warns CIOs to temper their long-term expectations. “What we’ve seen in the past in terms of returns in private debt strategies may not be indicative of what’s to come,” she says. —

By Anne Field