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Private Credit 

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9Questions is our Q&A series featuring key decision-makers in leveraged finance — get in touch if you know who we should be talking to!

Jess Larsen is the founder and CEO of Briarcliffe Credit Partners, a US-based placement agency focused on private credit.

We caught up with him to learn more about recent trends in the private credit landscape, as well as his decision to launch Briarcliffe during the depths of the pandemic.

1. You’ve had an interesting career path, which includes relaunching Highland Capital Management’s institutional business and establishing Merrill Lynch’s European Family Group in London. How did you pivot to private credit?

While working at Merrill Lynch in London establishing and managing its European Family Office Group, I was regularly supporting families’ interest in financing unique projects, including for real estate, expanding and acquiring private businesses, and other needs that were too complex for commercial banks to support.

To meet those needs, I leveraged Merrill Lynch’s investment banking services from the Illiquid Financing team to develop bespoke and complex solutions for those families, which was essentially what is today known as private credit. That approach to complex structures and creative financing solutions fascinated me, and was the inspiration to take my career further into the world of private credit.

2. Why did you start Briarcliffe, and why did you choose to launch in 2021?

Private credit has grown greatly, now at $1.5 trillion in AUM, and is the fastest growing alternative asset class, outpacing the rates of allocation to private equity, real estate, and infrastructure.

In seeking that capital, there has been a significant increase in the number of private credit managers, many of which have niche and complex strategies. Simultaneously, institutional investors have grown more sophisticated and interested in capitalizing on private credit’s growth. A typical placement agent acts as a generalist, which makes them less equipped to advise on the unique complexities in private credit.

Seeing this, I founded Briarcliffe as the first and — as far as we are aware — only placement agency dedicated exclusively to private credit. All our team members have deep industry experience which allows us to be a trusted advisor to LPs as well as a successful partner to GPs.

3. The private credit space is starting to get crowded. How do you distinguish yourself from other market participants?

There are nearly 2,000 private credit GPs globally, and at any given time, more than 600 are in the market seeking capital. LPs are often receiving upwards of 500, 600, 700 calls a year as it relates to private credit.

Understanding how managers are distinguished from one another is not an easy task. Having met with more than 350 private credit GPs to date allows Briarcliffe to produce a market mapping of who is in the market raising capital and, critically, how they are differentiated from each other. Having this knowledge allows us to formulate our clients’ (the GPs) positioning, as well as guide and advise our LPs more concisely on those differentiations.

With such a deep exposure in the private credit universe, we can attest to the challenges in finding managers with truly uncorrelated strategies, offering an edge that allows them to produce repeatable results. That is why we have chosen to represent fewer than 3% of the managers we have met so far.

4. What is a recent trend in private credit that you’re concerned about?

There has been a dramatic change in the macro environment over the last three to four months with high levels of inflation, interest rates, conflict in Europe, energy disruption, supply chain constraints, and the prospect of an economic recession or slowdown.

These risks will determine which strategies will be able to capitalize on them. Because of this, it is understandable that many institutional LPs are currently concerned about their internal return hurdles, and are therefore reevaluating their portfolios.

However, this shifting from other buckets — such as private equity, venture capital, fixed income, and strategies like direct lending — into more uncorrelated private credit funds, producing 10%+ net IRR on an unlevered basis, is an incredible opportunity for LPs. These niche and opportunistic strategies can capture those stronger returns in a volatile market, and are precisely the types of funds we represent.

5. What are LP's attitudes toward risk at the moment? Are you finding they’re pulling back, or are they risk-on?

LPs are changing the way they think about and invest in private credit amid the inflationary and high-rate environment. We have witnessed firsthand the trend of investors increasingly complementing their corporate direct lending with uncorrelated strategies that can perform despite current macroeconomic risks. It is less about pulling back, and more about seeking alternative strategies that can perform where traditional strategies cannot.

6. What is the most notable development you’ve seen in fund structures or fundraising strategies this year?

In our conversations with LPs over the last year, we have noticed a dramatic increase in the demand for open-ended, draw-down structures.

Instead of re-underwriting existing managers — which are returning to market at quicker intervals — with evergreen structures investors can continue to invest in those funds and have more time and resources to focus on uncorrelated strategies that enhance the performance and lower overall risk of their portfolios.

With inflation and rising interest rates, investors are looking for special situations, opportunistic, and asset-backed strategies, which tend to offer increased downside protection in an ever-changing environment.

7. Private credit has been making waves for at least a decade now. What’s the outlook for the emergence of the secondary market in private credit?

We have already seen this emergence over the last three to four years. With an especially challenging macro environment, we have seen a significant increase in secondary market opportunities in the past six months. And though we expect this trend to continue, given the fuse is shorter than typical private equity secondaries these strategies are often more complicated and complex.

8. Briarcliffe is currently focused on the US market. Will you consider expanding abroad in the future?

We are so happy to have deep working relationships with North American investors which our clients greatly value. That region accounts for 65% of global investments in private credit. While we remain committed to building our practice here, we recognize a natural extension of our expertise into the European market, where LPs are also very sophisticated around private credit and represent 25% of the global market. As the leading agency in private credit, it is critical that we eventually cover a vast majority of the LP market.

9. What’s the most interesting business trip you’ve ever taken in your career, and why?

I currently sit on the Board of Directors of Royal Albert Hall America, a not-for-profit organization comprised of American enthusiasts of the rich musical tradition of the historic London [concert] hall.

On my most recent visit, following a week of back-to-back investor and GP meetings, two clients joined my wife and me for the annual Last Night of the Proms concert which is a spectacularly unique English experience. For me, this is a perfect trip!

9Questions — Jess Larsen, Briarcliffe Credit Partners

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