Private Credit Summit | New York
At the 2025 Private Credit Summit, hosted in New York by Dechert, ING and KBW/Stifel, Dechert's Jay Alicandri moderated a panel discussion focused on current trends in the financing strategies employed by asset managers. Industry leaders Steven Colombo from Goldman Sachs Asset Management, Zaheen Mir from Blackstone, Madelaine O'Connell from HPS Investment Partners, LLC and Isha Shah from KKR shared their views on the shifting landscape of financing sources, maximizing capital efficiency, and the innovative approaches implemented by their firms and peers.
A few highlights include:
Private Credit 2.0: Pre-Global Financial Crisis ("GFC"), private credit was primarily distressed or opportunistic capital, an estimated addressable market of US$300 billion. Post-GFC and pre-COVID, private credit expanded to direct lending, an estimated addressable market of US$3 trillion. Post-COVID, most of what private credit is today is investment-grade rated, an estimated addressable market of US$300 trillion. The GFC and COVID, along with the regional banking crisis, created an environment of high interest rates and increased bank regulations. While deal supply was low, demand from investors, including insurance, pensions, alternatives and retail, for exposure to such assets was high, and regulations made it more punitive for banks to hold certain types of assets. Private credit managers are bridging this gap.
Risk-Based Capital: Growth in private investment-grade products, which by definition must be rated, has been aided by improved rating agency methodologies and frameworks. Such advancements have democratized access and allowed potential investors to view different asset types through a consistent risk regime. Despite products now being unified, insofar as they may all be ratable, it is unlikely that there will be a standardization in deals as asset managers are not always looking for the highest amount of leverage, but are balancing considerations like diversification, the ability to pivot portfolios and operational efficiency, as well as accounting, tax and regulatory hurdles.
The Continuing Role of Banks: The increased number and sophistication of players in the industry has changed the question from financing a portfolio to optimizing the efficient use of capital. The question is no longer finding the right partner, but the right types of capital for different parts of platforms or even different parts of the same transaction. In choosing between a bank or another finance provider, asset managers may balance considerations like tenor, regulatory constraints and risk department concerns. Although banks are no longer the sole or primary leverage solution for asset managers, they continue to play an important role in the scaling of private credit and are making strides in providing some amount of financing for new underlying assets.
Regional Financing: Jurisdiction of financing is another lever for maximizing capital returns and strategizing around differences in local regimes, such as solvency, regulatory, rating, fund structuring, capital base, accounting and tax, may result in synergies when aligning where an asset manager is originating its assets with where it is originating its debt. The volume of underlying deals in each jurisdiction may also necessitate more flexible financing; where there is less deal flow, the makeup of a portfolio may vary during a fund's reinvestment period and require a more active and creative financing partner. Local practices and differing preferences of capital providers may require solutions that are more catered toward those particular markets.
“Frenemy” Financing: Many asset managers are parts of institutions with insurance, pension and other underlying capital bases that are looking to invest in private credit. As such branches are looking to provide their clients with exposure to best-in-class managers, there is a fair amount of financing between competitors. To avoid giving away one's “secret sauce,” managers limit potential conflicts by tailoring information provided to such participants. Competitors may also be more comfortable financing each other, as the top managers are generally seeing the same deal flow and so are already familiar with the underlying assets. This overlapping landscape may cause ultimate investors to reevaluate their aggregate exposure limits.
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