Private Credit Goldrush to Squeeze Fund Managers: Credit Weekly

The €4.5 billion ($4.9 billio

) loan backing Blackstone Inc. and Permira Holdings’ buyout of European online classified company Adevinta ASA this week didn’t just smash records. It also highlighted a new trend that sees institutional investors offer portions of the debt direct to the borrowers.

They’re doing so because pension funds and sovereign wealth funds — among the largest pools of capital on the planet — are increasingly eager to cut out the middle-man when investing in the $1.6 trillion private credit market.

As a result, managers of direct lending funds risk becoming victims of their own success, as their investors decide to seek for themselves the lucrative double-digit returns that can be on offer. Such moves will also make it harder for investment banks to win back the profitable business of buyout financing once dealmaking returns in volume.

The Canada Pension Plan Investment Board (CPPIB) provided the largest chunk of the Adevinta private loan, while Singaporean sovereign wealth fund GIC contributed the third-biggest piece, according to people with knowledge of the matter who weren’t authorized to speak publicly.

GIC, CPPIB, Blackstone and Permira declined to comment. Normally, both CPPIB and GIC act as limited partners — LPs in industry parlance — and provide funds to private capital managers, or general partners, to deploy.

“As investors become more sophisticated and understand the risk they’re taking, they’re able to take it on a proprietary basis rather than doing it through a fund,” said Jeffrey Griffiths, co-head of global private credit at Campbell-Lutyens & Co Inc.

Private equity fund managers themselves are bringing LPs into their deals, said Karen Simeone, a managing director at private capital investor HarbourVest, meaning that they are playing an increasingly large role in private credit.

“Sponsors want to know the mindset of the owner of that paper and it works for the LP return profile,” she said. This benefits the sponsor in terms of supplying patient capital for their deals and also offers LPs potentially improved returns.

It’s not the first time that either CPPIB or GIC joined a fund manager to invest in a private credit deal and they’ve even invested alongside Blackstone before, the people with knowledge of the matter said. But Adevinta is a unique step and a possible herald of more to come.

Source from: Bloomberg