Wall Street: Why private credit is booming

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10 THINGS ON WALL STREET

Hi. I'm Aaron Weinman. Private credit is so hot, it was the talk of this week's SALT hedge fund conference.

Private credit is a pocket of the lending market that has grown to about $1.25 trillion in assets, according to Preqin data.

Private-credit funds lend — typically to leveraged companies — for myriad reasons, from financing acquisitions to servicing borrowers' working-capital requirements.

In their infancy, these funds stepped in for regulated banks. They provided small loans (say between $50 million to $200 million) to riskier companies that banks avoided, and often negotiated extras in their credit agreements like seats on their boards.

Private-credit funds plied their trade in the so-called middle market, and left banks to work on billion-dollar financings.

Now, equipped with trillions of dollars in dry powder, private-credit is taking market share from big banks more than ever before.

Let's take a look at the opportunities — dissected by Insider's Alyson Velati here — that private-credit giants like Owl Rock and Ares Management have found in this year's choppy credit markets.


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Wall Street street sign

1. Private credit has taken off amid a slowdown in dealmaking. There are opportunities for private-equity firms to tap private-credit lenders for loans rather than big banks.

Unlike bank loans, private-credit funds would usually underwrite the entire, albeit smaller, loan for a borrower, or team up with a few fellow lenders to provide the loans. Banks corral a syndicate of lenders to write sizable checks, which are then sold to third-party investors in the form of bonds or leveraged loans.

It was harmonious. Private credit stuck to small deals for small companies. Banks focused on big-ticket deals.

Now, equipped with trillions of dollars in dry powder, private-credit is taking market share from big banks more than ever before.

Blackstone and Oak Hill led a roughly $3 billion debt package for Carlyle's acquisition of US government contractor ManTech International, which closed today. In May, Goldman Sachs' asset-management arm provided $865 million in debt to help fund Brookfield's purchase of software company CDK Global.

Private-credit has a greater appetite for risk. They charge a greater interest rate, but can craft a deal faster (no roadshows, lender meetings), and they hold onto the loans usually until maturity.

Banks move debt off their balance sheets quickly. And by selling these loans to investors as bonds or loans, this debt is at the mercy of volatile secondary markets.

This year, banks have been left holding onto bad loans that they underwrote during the good times, and couldn't offload them when markets soured.

This dislocation has created opportunities for private-credit behemoths like Owl Rock or Ares.

For more on private credit, check out these stories:


In other news:

Joan Solotar of Blackstone in front of a window, wearing a sweater and a watch.

2. Blackstone has quadrupled its wealth business in four years. Joan Solotar, the firm's head of private wealth, outlined how the private-investment firm will win the war for retail clients.

3. Hedge funds are facing a shakeout as underperforming shops stutter. Here is what a $14 billion fund is doing to come out as a winner.

4. SoftBank is considering launching a third Vision fund, the Wall Street Journal reported. SoftBank, led by Masayoshi Son, absorbed massive losses in its previous Vision fund, which is now worth less than the investment that initially went into it.

5. Bankrupt crypto bank Celsius is plotting a comeback after the market crash, according to the New York Times. Alex Mashinsky, Celsius' chief executive, wants to rebuild the company by offering cryptocurrency storage and charging fees for certain transactions.

6. Citi expects to divest from its Mexican consumer-banking business by next year, the bank's chief financial officer said at a conference. The bank could sell its interest in Citibanamex via a straight sale or through an initial public offering.

7. Staying on Citi, regulators want the bank to move faster to fix problems with its risk-management systems. Citi is expected to submit a plan today, which executives hope will ease regulators' concerns, per this story from the Wall Street Journal.

8. Startup founders' salaries have been upended amid the market downturn. Venture capital-backed founders have higher salaries than their counterparts who have not raised outside funding, new data from Pilot revealed.

9. Investors and landlords are watching big expiring leases from the likes of Twitter and Morgan Stanley. The monitoring is so they can understand just how hard remote work will hit the office sector.

10. Inside the rise of the "bait-and-switch" job interview. Are you sure that a new employee is the same person you just interviewed?


People moves:

  • Francisco Partners has welcomed four new executives to the private-equity firm:
    • Erin Blake has joined as a managing director in legal and M&A. Blake will work with the investment team on legal matters relating to transactions. She was most recently a partner at law firm Kirkland & Ellis.
    • Jason Warner has joined as a MD and head of data science. He was most recently a principal in Blackstone's data science group.
    • Brian Elrod has joined as a director of tax. Previously, Elrod was a partner in Deloitte's M&A tax group.
    • Tulsi Byrne has joined as a director and head of ESG. She was previously the head of ESG for fixed income, private credit, and private equity at Nuveen.
  • Churchill Asset Management has appointed Carol Loundon its deputy chief risk officer. She was previously a MD in Churchill's senior lending underwriting and portfolio management group.

Curated by Aaron Weinman in New York. Tips? Email aweinman@insider.com or tweet @aaronw11. Edited by Hallam Bullock (tweet @hallam_bullock) in London.

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