**London**: Financial institutions are increasingly opting for collaborations instead of competition. Banks are recognising the synergy in partnering with private credit funds, aiming to combine networks with specialised deal-making expertise, thus expanding their market presence and operational efficiency amidst a shifting regulatory landscape.
In a shifting landscape of financial services, private credit funds and banks are increasingly moving towards collaborative partnerships rather than competition, as both entities seek to leverage their respective strengths. Over recent years, banks have begun recognising the potential benefits of teaming up with asset managers, aiming to blend their vast networks with the specialised deal-making expertise found in private credit firms.
Stephen Boyko, co-chair of the corporate department and a member of the private credit group at Proskauer Rose, noted the evolution of these relationships. “People started to realise that there could be something mutually beneficial to be done,” he stated, adding that partnerships allow banks to source relationships while credit funds can execute and secure financing on those deals. The impetus for these partnerships has become particularly pronounced in the past two years as banks strive to maintain their relevance in the market.
Setting up these collaborations is not always straightforward. Boyko pointed out that, in the most complex scenarios, establishing a partnership can take up to a year. Last year alone, he was involved in three such deals and has two additional partnerships underway. Notable alignments include collaborations between Apollo and Citigroup, as well as Centerbridge Partners and Wells Fargo.
The focus of these partnerships is evolving beyond mere direct lending to encompass a broader range of private credit opportunities. While historically the majority of these partnerships have been concentrated in the United States, Boyko sees potential for expansion into other international markets.
The regulatory environment is also playing a significant role in steering banks towards these partnerships. Boyko explained that banks are feeling pressure in various areas of lending—including leveraged, equipment, royalty, asset-based, and infrastructure finance—and are finding it advantageous to collaborate with private credit managers to source, underwrite, and fund loans through joint ventures. This approach allows banks to engage with multiple partners for diverse strategies, facilitating competition where beneficial while cooperating in others.
Many banks are recognising that collaborations represent a more efficient use of capital and simplify regulatory compliance. Despite this, a select number of banks are still opting to create their own credit outfits in pursuit of reclaiming market share from the private credit segment. Goldman Sachs, for instance, recently established the Capital Solutions Group aimed at collaborating with institutional investors to fund loans; if successful, this could set a precedent for other banks.
Data from Deloitte’s Center for Financial Services indicates that this cooperative approach is predominantly favoured by larger banks that possess sufficient balance sheet capacity, as well as those with integrated wealth or asset management divisions. Research from the consultancy shows that four out of eight global systemically important banks are pursuing their own fund development alongside partnerships, whereas that statistic drops to four out of 26 for regional banks, which are generally focusing on cooperative relationships.
Credit fund managers also see merit in these partnerships. Jennifer Crystal, a member of the private funds group at Proskauer Rose, observed that some of her firm’s clients perceive significant synergies in teaming up with banks. She explained, “They want to take advantage of the bank’s vast sourcing network while leveraging their experience and understanding of how to raise capital from institutional investors and how to operate and run a complex fund.”
For many credit fund managers, these partnerships provide a strategic avenue to scale their operations rapidly. Crystal added that for firms outside the top tier, having a partnership with a bank could offer a competitive edge when seeking to differentiate themselves in fundraising efforts.
Source: Noah Wire Services
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