The biggest lenders are bagging bigger chunks of the $1.4 trillion market for private credit as investors get choosier about where they park their money.
(Bloomberg) — The biggest lenders are bagging bigger chunks of the $1.4 trillion market for private credit as investors get choosier about where they park their money.
The 10 largest funds that have closed in the first nine months of the year, including ones run by Goldman Sachs Group Inc.’s asset management unit and Blackstone Inc., accounted for half of the $172 billion raised globally for direct lending in the period, according to a report published Wednesday by data provider Preqin.
“Investors remain positive on the asset class but are becoming more discerning in their allocations, with larger commitments going to fewer managers,” the firm said.
While global fundraising is on track to match last year’s $215 billion record, a closer look at the data shows a “more fragile” picture emerging of a market buffeted by higher interest rates and weaker prospects for economic growth, according to Preqin.
Only 106 private debt funds across Europe and North America closed in the first nine months of this year, compared with 209 across the whole of 2021.
“Despite strong fundraising by the largest funds, it hasn’t been smooth sailing for all private debt managers,” the report said, noting that a “significant proportion” of vehicles have closed below their initial target over the past three years.
Pulling Back
This year, investment banks pulled back from funding leveraged buyouts while struggling to shift tens of billions of dollars of debt from their balance sheets. Recent $1 billion-plus buyouts of businesses such as Coupa Software Inc. and Emerson Electric Co.’s climate technology unit were funded with the help of large private credit funds.
“There’s been a trend of consolidation towards larger funds,” said RJ Joshua, the lead analyst on Preqin’s report. “For the first time in a decade the top ten private debt funds represent half of all capital raised this year, which shows that incumbency is important.”
Ares Management Corp., Arcmont Asset Management and Carlyle Group Inc. are among the more established private lending units currently marketing large funds, according to previous reports from Bloomberg News. Preqin expects the market to grow to $2.3 trillion over the next five years.
Elsewhere in credit markets:
Americas
Bahamian liquidators are set to scuffle with US-based bankruptcy lawyers over the remains of Sam Bankman-Fried’s crypto empire, highlighting a key tension hanging over the downfall of FTX.
- AIG Financial Products Corp., a subsidiary of American International Group Inc. that collapsed in 2008 after credit default swaps bets soured, filed for Chapter 11 bankruptcy protection as the unit contends with a compensation lawsuit brought by former employees
- Bain Capital Credit has closed a roughly $650 million fund that aims to invest in the riskiest portions of the firm’s own collateralized loan obligations, easing the sometimes arduous process of placing the debt with third parties.
- Money managers that are skeptical that the Federal Reserve can engineer a soft landing for the US economy may consider seeking refuge in Canadian corporate bonds, whose prices better reflect the potential for more trouble ahead
- For deal updates, click here for the New Issue Monitor
- For more, click here for the Credit Daybook Americas
EMEA
Issuance in Europe is limited to a single euro-denominated deal from a Chinese borrower on Wednesday.
- Short seller Muddy Waters said on Wednesday it’s betting against the bonds of Vivion Investments in a report containing a slew of accusations against the landlord
- BC Partners’s Pronovias Group is in talks with some of its lenders to boost its cash as the bridewear maker struggles to rebound after the pandemic
- Holcim Ltd. will sell its Russia business to the local management team, the latest sign of major European firms severing ties with the country in the wake of its invasion of Ukraine
- King Carry is back and is set to become the most reliable source of returns for corporate bond investors next year — at least this seems to be the latest call coming from analysts
Asia
Concerns are growing about the $1.6 trillion of debt from Chinese local government financing vehicles amid one of the fastest declines in the onshore credit market.
- Hong Kong’s High Court approved Hong Kong Airlines Ltd.’s HK$49 billion ($6.3 billion) debt restructuring plan, boosting the carrier’s chance of survival after years of financial turmoil
- Vietnam’s leaders are taking urgent steps to avert a potential financial crisis as companies struggle to tap funding sources and risk defaulting on bond payments in the next two years
- PAG announced the closing of its fifth pan-Asia direct lending fund PAG Loan Fund V at its hard cap of $2.6 billion in capital commitments
(Updates with headlines from Americas)
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