Published in London & New York
10 Queen Street Place, London
1345 Avenue of the Americas, New York
Creditflux is an
company
© Creditflux Ltd 2024. All rights reserved. Available by subscription only.
News
Private credit firms begin creating desks for push into secondary trading
by Lisa Fu
A number of private credit firms are looking to push into secondary loan trading, a signal that the USD 1.7 trillion asset class is perhaps beginning to mature and resemble other fixed income markets.
Antares Capital, a direct lending firm backed by Canadian institutional investor CPP Investment Board, is looking to develop a unit that would buy private credit loans originated by other lenders. Golub Capital, a direct lender that has historically traded private credit loans on a case-by-case basis, is seeking to increase its private loan trading.
Private credit trading would follow the path set by sibling asset class leveraged loans, explained Jim McCaughan, US practice leader at investment management strategy consultancy Indefi. In decades past, what’s now the broadly syndicated market was illiquid, with loans rarely exchanging hands.
“The moves that asset management firms are making towards managing private credit funds follow from earlier moves to include traded bank loans in some high yield portfolios,” said McCaughan.
This follows from moves to include traded bank loans in some high yield portfolios
Jim McCaughan
US practice leader
Indefi
Investment managers see trading mainly as a way to source loans, he added. Competition is heating up among private credit firms that have raised billions for the strategy, and are struggling to find enough deals.
There’s also anticipation of a distress cycle. A firm with a trading desk could pick out attractive loans at a discount, said Karl D’Cunha, managing director at investment bank and consulting firm Ankura. They could build a side business brokering deals.
“It’s a spread business,” D’Cunha said. “If the loan seller wants close to par, then the trading desk could transact at 95.” On a USD 100m loan, that could be a USD 5m fee, depending on factors like collateral, issuer and quality.
But trading may upend one of the selling points of private credit: its relative immunity from market volatility. And not everyone is convinced the development of trading desks will lead to a significant increase in private credit secondary activity.
Private credit distinguishes itself from the BSL market by its close relationships, said Michael Handler, a partner at King & Spalding. He thinks any trading desks will create liquidity mainly for an institution’s own loans.
