Latest news with #directlending
Zawya
22-05-2025
- Business
- Zawya
Private credit touts resilience amid uncertainty: IFR
Recent market volatility has demonstrated the resilience of private credit, and the asset class is well positioned to withstand any future economic turbulence, according to industry participants. At the US Private Credit Industry Conference on Direct Lending, hosted in Nashville by the loan trade group, the LSTA, and events company DealCatalyst, speakers discussed avenues for growth, such as the proliferation of funds geared towards retail investors. Conference speakers largely agreed that the momentary pause in the broadly syndicated loan market following US president Donald Trump's April announcement of sweeping tariffs presented an opportunity for private credit to take market share. Though market activity has since normalised, there remains a broader trend towards private markets, they said. 'Private credit has been taking share from the liquid credit markets for a while,' Kerry Dolan, managing partner at Brinley Partners, who spoke on the conference's opening panel on Monday morning, told IFR. 'We expect that shift to continue. Private credit also typically increases in popularity during times of volatility as it reduces market risk.' Leveraged buyout activity, however, remains relatively sluggish given a slump in valuations for private equity portfolio companies and, more recently, a cloudier economic outlook given uncertainty around tariffs. Even so, said Eric Muller, portfolio manager and partner at Oak Hill Advisors and CEO of the firm's business development companies, his firm has had strong investment opportunities come its way. 'The buyouts that are happening right now are of very high quality,' Muller said during a Monday afternoon panel on large-cap lending. 'We're seeing add-ons within portfolio companies, as well as refinancings and other transactions that a borrower may need to execute right now and doesn't have the flexibility to wait.' Good exposure Private credit has so far been largely insulated from worries over tariffs. Several private credit managers have estimated that less than 10% of their portfolios face direct exposure to such import taxes. Investor sentiment towards the asset class has remained largely positive in the face of market volatility, Dave Donahoo, head of Americas – wealth management alternatives at Franklin Templeton, told IFR. Donahoo also spoke on a Tuesday morning panel about retail access to private credit investments. 'Private markets price on fundamentals, not market sentiment or technicals,' he said. 'So it's moments like this that the wealth management community – the individual investor – is reminded why having exposure to private markets helps their overall portfolio.' There are concerns, however, about the impact that tariffs may have on the economy at large. A slowdown could weigh on the performance of private credit borrowers, some of which already face challenges from persistently high interest rates, as S&P noted in a May 9 report. Nonetheless, conference speakers were largely sanguine about private credit's ability to navigate a potentially weakening economy. 'We're coming off a relatively strong backdrop if we were to head into a recession,' said Jonathan Bock, a senior managing director at Blackstone and co-CEO of the business development companies Blackstone Private Credit Fund and Blackstone Secured Lending Fund. Certain situations, such as stagflation, are 'challenging for equities but can be okay for credit', said Colbert Cannon, a managing director at HPS Investment Partners. Bock and Cannon spoke alongside Muller on Monday afternoon. Sizing up While the commentary regarding the prospects for private credit was largely upbeat, some speakers expressed caution regarding investment selection, especially as the asset class has taken on large transactions that overlap with the broadly syndicated market. Matt Freund, managing director at Barings and president of Barings BDC, said his firm is not actively seeking to chase after these large deals. 'I'm sceptical of the idea that origination is proprietary in the upper end of the market,' Freund said on a panel focused on investment strategy. But competition is also fierce for loans to lower-middle-market borrowers, and spreads have also tightened significantly among that segment, he said. Though his firm does not emphasise seeking larger transactions, according to Anthony DiNello, head of direct lending at Silver Point Capital, it does have strong relationships with banks, which have proven beneficial in periods of market dislocation. 'Some of our best deals come through relationships with Wall Street banks,' DiNello, who spoke on the same panel as Freund, said.
Reuters
22-05-2025
- Automotive
- Reuters
Private credit's boom faces a cyclical test
NEW YORK, May 21 (Reuters Breakingviews) - As private credit rises into the stratosphere, the air is becoming thinner. Non-bank loan providers like Apollo Global Management (APO.N), opens new tab and Blackstone (BXSL.N), opens new tab have exploded in size, with so-called direct lending reaching $1.6 trillion in assets under management, according to BNP Paribas. As they grow, they're increasingly exposed to factors out of their control. Automotive chipmaker Wolfspeed (WOLF.N), opens new tabexemplifies a recent push into strategic industries. Under President Joe Biden, the United States sought to foster electric vehicles and rapid chip expansion, agreeing to extend a $750 million loan to the company under the CHIPS Act. Buyout barons moved aggressively to capitalize, with Brookfield Asset Management and Apollo inking joint ventures with domestic giant Intel. The firm run by Marc Rowan also led a more conventional $1.25 billion funding round for Wolfspeed, with another $750 million to match the government money. President Donald Trump is less enthusiastic about both EVs and CHIPS funding. Amid federal loan delays and a slowdown in battery-powered vehicle growth, Wolfspeed's market value collapsed from $4 billion to $157 million. The company is now planning a bankruptcy filing, the Wall Street Journal reported. Meanwhile, humdrum but ordinarily recession-resistant businesses have also struggled. Zips Car Wash, which grew to 260 locations through aggressive acquisitions, saw its annual interest burden jump by roughly 58%, opens new tab to $93 million in the space of a year as rates rose. Lenders took haircuts in a bankruptcy this past February that wiped out private equity backer Atlantic Street Capital. Technology deals that propelled direct lending's post-pandemic boom can go awry, too. Back then, they extended a flood of loans sized on recurring revenue rather than profit to the likes of Zendesk and Anaplan. A Blue Owl Capital-led group put up $1.5 billion to fund Vista Equity Partners' buyout of video training provider Pluralsight. Tech layoffs and, again, rising rates, tipped the company into a messy restructuring, opens new tab, with creditors ultimately taking the keys. Lenders' own assessments of these loans only slowly reflected these slides. Main Street Capital valued its loans to Zips at 94 cents on the dollar in early 2024, less than a year before bankruptcy. Blue Owl pegged Pluralsight at 97 cents at the end of 2023. Similarly, investors trying to gauge the risks they're taking have their work cut out. Around 24% of global private credit assets are still yet to be deployed, BNP reckons. To spend this hoard, lenders are tackling bigger, complex deals, like Thoma Bravo's $11 billion buyout of Boeing's navigation software business, opens new tab, Bloomberg reported. As the stress of tariffs or a potential consumer pullback rises, just how exposed private credit is the vagaries of the economic cycle and policy whims will become clear. Follow @sptruestories, opens new tab on X
Bloomberg
21-05-2025
- Business
- Bloomberg
Blue Owl Capital Targets Expansion to Retail Investors in Japan
New York-based alternative asset management firm Blue Owl Capital Inc. said it aims to enter the Japanese mutual fund market as early as next year. Johann Santer, who oversees the firm's private wealth division in the Asia-Pacific region, said in an interview on May 13 that Blue Owl would offer to individual investors publicly traded funds that include things such as direct lending involving companies or asset-based finance linked to things including consumer loans.
Bloomberg
21-05-2025
- Business
- Bloomberg
Natixis Seeks Partners for $1.5 Billion Private Credit Fund
France's Natixis SA is in talks to set up a direct lending fund of around $1.5 billion, which would allow it to buy into the asset class, according to people familiar with the matter. The French institution would manage the fund, aimed at opportunities such as direct loans to highly leveraged companies, allowing it to extend credit beyond its own balance sheet, according to people familiar with the matter who were not authorized to speak publicly. The fundraising effort is expected to wrap up in the coming months, they added.
Reuters
12-05-2025
- Business
- Reuters
Breakingviews - Private credit's mass appeal creates new risks
LONDON, May 12 (Reuters Breakingviews) - Advocates for private credit like to tout a key advantage over banks: locked-up money. Depositors at old-school lenders can flee in a panic, as Silicon Valley Bank found in 2023, exposing a mismatch between flighty funding and hard-to-sell investments like business loans. By contrast, the backers of direct lending vehicles commit money for years, making a cascading run impossible. A fast-growing part of the $2.2 trillion private credit universe, though, muddies the waters somewhat. Leading firms like Blackstone (BX.N), opens new tab, Apollo Global Management (APO.N), opens new tab and others have collectively raised nearly $300 billion from private individuals, according to PitchBook data, in large part thanks to the popularity of so-called evergreen vehicles, which offer investors the ability to redeem some cash. The structure is still much more robust than the traditional bank funding model, but the nascent private-credit retail boom introduces new risks. Evergreen vehicles are hot, especially in the debt world. The Blackstone Private Credit Fund, known as BCRED, had $81 billion of assets under management on March 31, compared with $45 billion three years earlier. It shovelled nearly $1 billion of management fees to Steve Schwarzman's firm in 2024. Last year, private debt managers raised $67 billion through such vehicles, or roughly a third as much money as they raised from mainstay institutional backers like pension plans or charitable endowments, PitchBook reckons. Similar products are now sprouting up across Europe, including the $3 billion Ares European Strategic Income Fund. The new breed differs from classic private credit in three ways. First, evergreens are perpetual, meaning that managers pour the proceeds from old investments into new opportunities rather than handing the money back to investors ahead of a set expiration date. Second, the vehicles' backers can pull cash at will rather than having it all locked up for years, though redemptions are typically limited to 5% of net asset value per quarter. This liquidity helps explain the third key difference: mass appeal. Investors in evergreen funds include the workaday rich, who generally like to know they could get a bit of money back if they need it. The typical customer would access BCRED and other products through wealth advisers at Morgan Stanley, UBS and elsewhere, though CEOs like Apollo's Marc Rowan are keen to expand the target audience to include retail investors with a 401(k) savings plan. Evergreens have downsides. For one, managers lose control of when they invest. Perpetual funds, by definition, should ideally have all their money at work at any given moment, meaning they need to make loans as soon as cash comes in, while potentially sitting tight when investors redeem. As the Bank for International Settlements has argued, this may weaken, opens new tab one of private credit's innate advantages: the ability to deploy capital when others won't. That was particularly evident after the pandemic and 2022 rate-hike cycle, in which direct lenders seized, opens new tab market share from banks that were stuck with unsold buyout loans. The private-credit sector has delivered positive returns every year since 2010, with a 9.4% annual average over that period, according to Breakingviews calculations using MSCI Index data. To the extent that this performance comes from opportunistic timing, evergreen investors may lose out. Another worry is that redemptions could ripple across private-credit markets during a crisis. Since funds own hard-to-trade assets like buyout debt, evergreen vehicles could struggle to get a good price if they had to sell fast to meet withdrawals. That may cause loan prices to fall more broadly. A sector that has prided itself on being a corporate-funding backstop could thus become the source of a problem. And since private-credit valuations aren't always transparent, investors may be more prone to yank their funds if they doubt those marks. Industry advocates have strong arguments in response. With redemptions generally capped at 5% of net asset value per quarter, or 20% per year, fire-sales may not be necessary. Assuming a fund has spread its bets evenly among a pool of five-year loans, a fifth of the assets should pay back each year, meaning the vehicles could meet the maximum investor repayments without having to sell anything. Managers generally expect investments to turn over every three or four years, providing an even bigger buffer. They could also meet redemptions by drawing down bank loans or using cash and cash-like investments. The industry's defence is backed up by a relatively robust performance. Evergreens were still nascent in the 2020 pandemic panic. But those that were around, like Blue Owl's Owl Rock Capital 2, coped with redemption requests. Nor did rate hikes and falling markets in 2022 trigger a meltdown: Fitch Ratings reckons the top funds saw redemptions peak at less than 3% of equity capital in the first quarter of 2023. There's also no evidence yet of mass withdrawals following the April 2025 market volatility. Still, the industry's rapid growth risks bringing flightier investors into the fold. The danger is that persistently large redemption requests in a crisis, while not an immediate death sentence, mean that managers can't realistically make new loans, denting returns and effectively tipping a vehicle into slow-motion decline. Another risk is that firms struggle to deploy all the funds they're raising and so reach for riskier or harder-to-trade assets, like subordinated debt. That could lead to unexpected losses, spooking investors and making it harder to honour redemption requests. Already, private credit shops are racing to deploy over $400 billion of unspent capital, according to Preqin. In other words, evergreen's rising popularity may be leading to a future with less sophisticated investors alongside riskier lending practices. It won't create anything as dramatic as a bank run, but managers will have to stay disciplined to avoid falling victim to their own success. Follow @Unmack1, opens new tab on X
