(Bloomberg Opinion) — Private credit has boomed over the past two years as the Federal Reserve raised interest rates and banks retreated from risky lending.But as a condition of its great success Relax As the broad syndicated loan market reopens, non-traditional lenders are looking for a second shot.
Asset financing is the new buzzword. This type of loan, backed by cash flow such as credit card receivables or aircraft leases, has historically been the domain of banks. Currently, approximately $1.7 trillion is managed in private credit.But the universe would be even wider if we included ABF, which KKR & Co. Inc. estimates is approx. $5.2 trillion.
Private equity giants are already making inroads. In February, Barclays sold approximately $1.1 billion worth of assets credit card debt The Credit and Insurance segment of Blackstone Inc. In December, the KKR-led group purchased a portfolio of approximately $7.2 billion Recreational Vehicle Loans From Bank of Montreal, Canada. In both cases, the bank will continue to service the account.
It’s a familiar plot, with alternative managers stepping in and banks retreating. Take Barclays, for example, which faces additional capital requirements imposed by British regulators on its U.S. credit card loan book. As a result, the British bank must sell existing debt to continue growing its overseas operations. This opens a window for private equity firms to operate with little regulation.Instead of putting all the risk on their balance sheets, banks could keep half and transfer the rest to alternative asset managers, Blackstone Group President Jonathan Gray said Tell Financial Times last May.
Private equity giants are looking for new ways to raise capital and earn fat fees as their bread-and-butter buyout business slows. Insurance companies are natural cash cows.The Big Three of private equity – Apollo Global Management, Blackstone and KKR – all own buy insurance company or take minority stakes in them in exchange for managing their assets.
Blackstone’s Credit and Insurance Division Approximately $319 billion under management, accounting for about 30% of total assets. Apollo’s indicators were even more extreme. After completing its merger with insurance company Athene in 2022, Apollo will create Net profit increased last year Compared to the past ten years. More than 80% of the assets managed by the company are credit assets. spread related incomeIts income from investment policy premiums reached US$3.1 billion, accounting for more than 60% of the company’s total profits.
Originate private credit assets Sold to its Athene annuity business CEO Marc Rowan said this was critical to Apollo’s growth. ABFs, in turn, come in handy as they typically have investment grade credit ratings. Insurers tend to favor high-quality assets and avoid junk-rated corporate debt.
But alternative managers’ moves into areas such as auto loans and credit card debt are raising eyebrows. In a March report, Moody’s Investors Service spelled out two issues. ABFs are first and foremost opaque securitization vehicles. The involvement of private credit funds can create additional implicit leverage, especially if managers are allowed to borrow to boost returns. But more importantly, the agency is concerned about the risk of concentration, where a handful of large private equity firms are responsible for a rapidly growing financial ecosystem and, in turn, have an outsized impact on the economy.
Ultimately, strict bank regulation largely drove the increase in private credit activity. To date, the three Kings alone manage more than $2 trillion, which is larger than the U.S. junk bond or leveraged loan markets. Why are they still unregulated when they are so embedded in everyday life? They are the real hidden whales, not the banks.
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To contact the author of this story:
Ren Shulihe (email protected)
