The Big Winners From Private Credit’s Boom Are Becoming Clear

(Bloomberg) -- A chasm is forming between the haves and have-nots in the rapidly expanding private credit asset class. 

Intermediate Capital Group Plc this week wrapped up a €15.2 billion ($16.8 billion) European direct-lending fund raise, the largest pool of capital of its kind ever secured in the region. It follows July’s record-breaking haul of $34 billion, including leverage, by Ares Management Corp. for a similar US strategy. 

Meanwhile, firms such as Fidelity International and Boca Raton-headquartered Polen Capital have halted their early European direct lending activities this year after struggling to get them off the ground. The contrasting fortunes are a sign that the boom in the $1.7 trillion private credit industry is being enjoyed by fewer and fewer credit managers.

“If you want to talk to the biggest companies then you need the biggest pockets of capital,” Rob Seminara, Apollo Global Management Inc.’s head of Europe, said at the IPEM conference in Paris this past week. “We will continue to see bigger managers grow in scale as they’re much more relevant to the biggest companies in the world. Private credit is a real enabler to them.”

Industry titans such as Blackstone Inc., Apollo and the asset management unit of Goldman Sachs Group Inc. are scaling their franchises into so-called ‘one-stop-shops’ for debt financing, with the ability to offer financing across the capital structure. This plays to their advantage when it comes to relationships with borrowers, according to Seminara.

More Discerning

Investors are becoming more discerning about asset managers because a prolonged period of higher rates has created a double-edged environment for credit funds, where there are higher returns to be won but greater risk of stress for the companies to which they lend. As competition for capital intensifies, several mid-tier fund managers are struggling to raise money for new funds, people with knowledge of the matter said.

Market participants also expect performance among lenders to start to diverge as each manager’s portfolio is tested.

“As markets become trickier to navigate, investors are choosing to back direct-lending funds with good track records, and the scale and capacity to invest through credit cycles,” Mathieu Vigier, co-head of ICG’s direct lending franchise, told Bloomberg News in an interview.

Indeed, money raised through funds targeted to institutional investors, including asset managers and pension funds, is expected to be about flat this year, according to data compiled by PitchBook. About $91 billion was raised from 59 private credit funds in the first half of 2024, the data shows. During the same period last year, 68 funds closed with $98.9 billion. 

“Private credit asset managers are transforming the landscape for corporate debt, taking market share both from commercial banks and from the syndicated lending market, but also reaching new borrowers that these traditional intermediaries viewed as too risky,” Jared Elias at Harvard Law School and Elisabeth de Fontenay at Duke University School of Law wrote in a July research paper. 

“As a result, there is a small elite club of perhaps a dozen or so asset managers who play an increasingly critical role in corporate finance.”

Week in Review

On the Move

--With assistance from Kat Hidalgo and Francesca Veronesi.

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