Private Debt News Weekly Issue #19: Record-Breaking Funds, Market Dynamics, and Global Expansion

A Look Into Recent Private Credit Trends

This edition of Private Debt News Weekly examines the record-breaking fundraising efforts led by industry giants, the expansion of private credit into Asia and retail markets, and the increasing calls for transparency from regulators and traditional finance leaders.

We also delve into notable deals that highlight the sector's growing influence across various industries and regions, providing a comprehensive view of the current state and future trajectory of private credit.

Record-Breaking Fundraising and Market Dynamics

Key Takeaway: Private credit firms are amassing unprecedented amounts of capital, with Ares Management leading the pack, while market volatility is causing lenders to reconsider pricing strategies.

Ares Management Corp. has set a new industry record with its latest direct lending fund, raising nearly $34 billion. The Ares Senior Direct Lending Fund III secured $15 billion in equity commitments, surpassing its $10 billion target. This fund's total capital is more than double when including leverage and separately managed accounts, making it the largest dedicated pool in the private credit market.

Other significant fundraising efforts include:

• Goldman Sachs Group's $20 billion war chest, including $13 billion in equity capital

• HPS Investment Partners' $21.1 billion Specialty Loan Fund VI

• Ares' European strategy aiming for over €20 billion ($21.6 billion)

• Oaktree Capital Management targeting more than $18 billion

However, market volatility is causing private credit funds to reassess their pricing strategies. David Golub, CEO at Golub Capital, noted that recent market turmoil might "take some of the steam out of some of the parties that have been most receptive to reducing spreads in the private market." Interest margins for larger private credit loans have fallen by at least 100 basis points since early 2023, with some recent deals pricing as low as 4.75 percentage points over benchmark rates.

Global Expansion and New Markets

Key Takeaway: Private credit is expanding globally, with significant moves into Asia and new fund structures targeting retail investors.

The private credit boom is extending to Asia, with several notable developments:

• Goldman Sachs and Mubadala Investment announced a $1 billion Asian private credit fund

• KKR unveiled a $1.1 billion Asian vehicle two years ago

• Indian private credit deals jumped nearly 50% to $7.3 billion last year

In Nigeria, FCMB Asset Management Ltd. is launching the country's first private credit fund, aiming to raise 100 billion naira ($63 million) to support mid-sized firms. The fund's first tranche targets 10 billion naira and offers returns benchmarked to the yield of the 10-year Nigerian local sovereign bond plus 3%.

Private credit firms are also tapping into the retail investor market through interval funds. These funds, which can be purchased in amounts as low as $1,000, have grown almost 40% per year in the last decade to $80 billion. Major players like KKR, Capital Group, and Blackstone are planning or considering interval fund launches.

Notable Deals and Industry Moves

Key Takeaway: The private credit market continues to see significant deal activity across various sectors and regions.

Recent notable deals include:

• A £1.75 billion ($2.2 billion) loan from Apollo Global Management, KKR & Co., Blackstone, and HPS Investment Partners to finance the Hargreaves Lansdown buyout

• Bohai Leasing Co. signing a $1 billion private loan agreement with RRJ Capital

• TPG's Twin Brook Capital Partners closing its fifth direct lending fund with $3.9 billion in commitments

• Crestline, an $18 billion AUM firm, exploring strategic options including a potential sale

In personnel moves, Adriaan van der Knaap has relocated to Apollo Global Management's London office from New York to bolster the firm's high-grade capital-solutions team in Europe.

Regulatory Scrutiny and Market Concerns

Key Takeaway: The rapid growth of private credit is attracting increased attention from regulators and raising concerns about transparency and risk management.

Bank CEOs and regulators are calling for better disclosures from private credit funds. Westpac CEO Peter King highlighted transparency as the greatest challenge, while APRA Chairman John Lonsdale revealed ongoing discussions with global authorities to understand the risks posed by private credit's growth.

Concerns include:

• The opacity of the $2.3 trillion private credit sector

• Potential liquidity mismatches in interval funds

• The sector's ability to weather economic downturns

Looking Ahead: Opportunities and Challenges

As the private credit market continues to evolve, key trends to watch include:

1. The push into retail investor markets through new fund structures

2. Expansion into emerging markets, particularly in Asia

3. Increased regulatory scrutiny and calls for transparency

4. The impact of market volatility on pricing and deal structures

5. Potential industry consolidation as firms seek scale and diversification

The private credit landscape is rapidly changing, presenting both opportunities and challenges for investors and fund managers alike. As the market matures, adaptability and risk management will be crucial for success in this dynamic sector.