Private credit funds and banks have been in a continuous battle over who gets more market share. But now many are looking to move beyond the constant tug-of-war and focus on what they do best.
That means many banks are looking to set up partnerships with asset managers, to benefit from their dealmaking expertise, while using their own vast network for sourcing.
“People started to realise that there could be something mutually beneficial to be done,” said Stephen Boyko, co-chair of the corporate department and a member of the private credit group at Proskauer Rose. “If the banks would source those relationships, the credit funds could execute on them and raise the money.
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“There’s been much more of a push, particularly over the last two years on the bank side to find a partner. Because the banks really want to stay relevant to their customers.”
The partnerships are not always easy to set up and can take up to a year in the most complicated cases. Boyko has worked on three such deals last year and has two more in the pipeline.
Groups that have set up such partnerships include Apollo and Citigroup or Centerbridge Partners and Wells Fargo.
Now, the focus is moving beyond direct lending into other areas of private credit. While the majority of these have been US-focused, Boyko also sees the model opening up in other geographies.
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“The banks are feeling the pressure on the regulatory side in all aspects of lending, including leveraged lending, equipment finance, royalty finance, asset-based lending, and infrastructure lending, and they are teaming up now with private credit managers to source, underwrite, and fund those loans through joint ventures,” Boyko explained. “So you can have a bank that has multiple joint ventures with multiple parties for different strategies. I think the competition part’s been working out pretty well because they’re partnering where it makes sense to partner and where it doesn’t, they’re competitive.”
In most cases, banks are realising that a partnership is a better use of their capital and it is easier from a regulatory perspective, Boyko said. But some are continuing to set up their own outfits, in a bid to win back business from the private credit market.
Goldman Sachs recently announced the creation of the Capital Solutions Group, which will work with institutional investors to fund loans. If it is successful, other banks may want to follow its example. But for now, it is among the minority.
According to Deloitte’s Center for Financial Services, this approach is more common among large banks that have the capacity on their balance sheet. It also works for those that have their own wealth management or asset management businesses.
According to the consultancy’s own research, four out of eight global systemically important banks are building their own funds, in addition to pursuing partnerships. But this figure falls to four out of 26 for regional banks, which are mostly developing cooperative relationships.
It is not just the banks that see the value in partnering up.
Jennifer Crystal, a member of the private funds group at Proskauer Rose, added: “We have some credit fund clients who see a real potential for strategic synergies. They want to take advantage of the bank’s vast sourcing network while leveraging their experience and understanding of how to raise capital from institutional investors and how to operate and run a complex fund.
“Some credit fund managers view these partnerships as a way to add scale quickly. If you’re not one of the top 10, but you’re trying to differentiate yourself in respect of fundraising, if you can talk about having this kind of partnership or joint venture with a bank, I think it helps in terms of scaling the business.”
