Barclays eyes move into lucrative world of private credit

[LONDON] Barclays is developing a global private credit strategy, said several people familiar with the situation, seeking to take part in the fast-growing US$1.2 trillion asset class.

The plans are at an early stage, and the details on exactly how Barclays will enter private credit are still under discussion, so the bank has not reached out to external investors, they said, declining to be identified because they are not authorised to speak publicly about the matter.

The bank does not have an asset management arm, so unlike its peers, any lending strategy would sit in its corporate and investment bank, and will be launched using the bank's balance sheet, they said.

A spokesperson for Barclays declined to comment. For banks, moving into private credit - the debt-focused equivalent of private equity - makes sense on several fronts. The market for loans raised from non-public debt markets is growing fast globally; private credit managers' assets under management have almost doubled in the last 5 years to hit US$1.2 trillion as of June 2021, said data provider Preqin.

The irony is that the asset class owes at least part of its growth to banks, which pulled back from traditional lending in the wake of losses during the financial crisis and higher capital costs as regulators overhauled banking rules. Barclays itself sold a roughly £500 million pound (S$890 million) portfolio of loans to Ares Management - one of the largest direct lenders in Europe - in 2015.

The asset class now has out-grown its small time business roots. And with more money sloshing around the industry, managers are competing to finance larger companies like Boots and The Access Group in Europe and Anaplan Inc and SoftBank Group Corp in the US.

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By expanding into private credit, banks can retain client relationships, keep deal fees if more traditional financing routes fall through, while also hoping to earn management fees by raising capital from the yield-hungry institutional investors that have driven the market's stellar growth. Unlike their non-bank counterparts however, banks face more questions about potential conflicts of interest should loans sour.

But if anything, Barclays is a little late to the party. Active in the space even before the 2008 financial crisis, Goldman Sachs Asset Management continued the strategy and is one of the most prominent private credit providers. In 2020, Credit Suisse Asset Management partnered with the Qatar Investment Authority to dish out debt to upper middle-market and larger companies in the US and Europe.

Last year, Morgan Stanley Investment Management closed its US$1.6 billion third private credit fund in the US, and in January, hired to expand the strategy into Europe. In Europe, both HSBC Holdings and Deutsche Bank have established private credit strategies within their asset management arms to finance mid-market companies.

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