Co-investing partnerships between private credit managers and banks are likely to become more common, as the structure proves to be mutually beneficial for both parties.
Stephan Plagemann, chief financial officer and head of portfolio management at Mount Street, believes that the co-investment trend is a response to the conservative lending environment which has caused banks to retrench away from higher-risk assets such as alternative credit. At the same time, the private credit space has been growing rapidly in response to investor demand.
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“I think we will see more of these partnerships simply because banks continue to optimise their balance sheet and there are a lot of funds being raised in private markets,” said Plagemann.
“Banks are a lot less keen than they were previously to hold capital intensive loans on their balance sheet, for example long-dated infrastructure debt.”
Mount Street works with a number of European banks. This involves both bringing more institutional investors on board and managing the fund thereafter on their behalf.
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“We would be the portfolio manager of the fund,” Plagemann added.
“We bring investors in to create a co-investment vehicle for the bank. So, when the bank originates infrastructure debt, for example, they would keep part of the loans on the balance sheet and part of it they would offer to us as an investment into the fund, and we then manage the fund.”
Plagemann pointed out that this arrangement benefits all parties involved. He noted that banks tend to be better set up to provide borrowers with local coverage and a holistic relationship across all banking products, while debt funds can add more flexible solutions, which would be too capital intensive on a bank’s balance sheet.
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The investor on the other side benefits from the underwriting of the portfolio manager, and exposure to a diverse portfolio without the need to participate in individual loan syndications.
“I think it makes a lot of sense for both sides,” he added.
