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Wall Street banks partner with private credit funds to ‘supercharge’ origination
by Lisa Fu & Lisa Lee
JPMorgan and Citigroup are partnering with asset managers to broaden their reach into the burgeoning USD 1.7tn private credit market. These latest moves are upping the stakes on previous tie-ups, and more are expected.
JPMorgan is in negotiations to build a roster of private credit partnerships. It has signed agreements with FS Investments, Shenkman Capital Management and Cliffwater. That move emerged a few days after Citigroup and Apollo Global Management set a new marker when the duo announced the biggest ever direct lending alliance, which aims to deploy USD 25bn in North America.
“I think you’ll see lots more of this,” Marc Rowan, co-founder of Apollo, said on the firm’s investor day presentation.
The rapid rise of private credit, the majority of which is sub-investment grade leveraged loans, has altered the landscape of corporate lending. Direct lenders have muscled into investment banks’ fee-earning business of arranging and raising debt from the high-yield bond and leveraged loan markets, and the banks are fighting back.
A referral partnership is “a match made in heaven” as it’s a way for banks to maintain market share and fee revenue, said Richard Bruyère, managing partner at investment management consultant Indefi.
That is pretty much impossible for a private credit provider to compete with
Richard Zogheb
Head of global debt capital markets
Citigroup
Banks are less flexible and more reactive, and they typically do not want to incur onerous capital charges from keeping the sub-investment grade loans on their books. In turn, direct lenders tend to have deeper pockets than the bank’s balance sheet and may bring flexibility to the partnership, he said.
Private credit firms see the benefits as well, since many are looking to deploy significant amounts of capital they have raised for the strategy.
In late July, Ares Management closed on USD 15.3bn for its Ares Senior Direct Lending Fund III, and Goldman Sachs Asset Management announced in late May that it had raised USD 13.1bn for a direct lending strategy. More large direct lending funds are set to close, with several managers marketing multi-billion dollar vehicles, including Oaktree, which is targeting a USD 10bn raise for a large cap, senior direct lending strategy.
Banks, with their army of corporate and investment bankers, can find opportunities for asset managers, lessening the need to hire and build their own team.
Teaming up with Citi “supercharges” Apollo’s origination as it gains access to Citi’s best-in-class corporate and investment bankers, said Richard Zogheb, Citigroup’s head of global debt capital markets. Bankers tend to spot opportunities as they keep a dialogue with both sponsors and leveraged corporates by selling multiple products, providing sector expertise and working on multiple transactions. Arranging a referral programme with a bank gives the manager deal flow.
“The content that comes from our industry bankers... is pretty much impossible for a private credit provider to compete with,” Zogheb said.
Partnerships aren’t the only way for banks to get into private credit. JPMorgan has previously earmarked USD 10bn from its balance sheet for private credit lending, and has been making direct loans from the banking side of its business for years.
But most have opted for partnerships. In 2023, Centerbridge Partners struck a partnership with Wells Fargo; AGL Credit Management launched AGL Private Credit with Barclays in April 2024; in May this year, PNC Financial Services and TCW Group formalised their partnership; and Webster Bank formed a direct lending venture with Marathon Asset Management in July.
Creating a network comparable to a bank to reach non-sponsored borrowers, in particular, would be costly for any direct lender, said Moody’s global head of private credit Ana Arsov.
“For the private credit lenders, this arrangement allows them to acquire assets using what is essentially an outsourced sales force,” she said.
