Once triggered, the funds may make no new investments without investor consent. Should a majority of investors fail to consent, then the investment period will be permanently terminated, added one of the sources.

“This affects every Barings private credit fund,” said the source.

Barings could argue that the 26 personnel remain legally employed until the end of May, and therefore no provisions have been triggered. “We have successfully transitioned to new leadership in our Global Private Finance platform and remain able to invest across it,” Barings said in an emailed statement to 9fin on 15 March.

However, in practice, the staff are on leave and take no further part in the active management of funds, pointed out the source.

“The key person clause is breached [now] and the only way to cure it is investor consent,” said the source. “This takes weeks to organise.”

Barings was not able to confirm to 9fin at the time of publishing that it currently had majority investor consent to cure the key person provisions and take the funds out of any suspended investment period.

Triggering key-person provisions

Key-person clauses or provisions are designed to protect investors should a fund manager leave the fund. In the December 2021 10-K form of Barings-managed BDC, it listed its dependence on investment professionals as the very first item on its “Risks Relating to Our Business and Structure”:

“The loss of any member of Barings’ investment committee or of other investment professionals of Barings and its affiliates would limit our ability to achieve our investment objectives and operate as we anticipate, which could have a material adverse effect on our financial condition, results of operations and cash flows”, the form stated.

In the event of a trigger, the fund’s investment period is suspended, and investors can choose to be repaid as the fund is redeemed. Should a majority of investors want repayment, the fund is terminated, explained the source.

Although key-person provisions can vary, the majority threshold in these circumstances is typically two thirds of investors, according to a report from US law firm Schulte, Roth & Zabel.

Vultures

The situation has opened an opportunity for banks and direct lenders to poach loans extended by Barings. Sources of 9fin said that some rival lenders are already circling Baring’s deals “like vultures”.

According to 9fin data , Barings has acted as lender in 47 deals in 2023, down from 62 in 2022. Around 85% of its European deals in 2023 involved companies with less than €50m-equivalent EBITDA.

A second source commented that they would proactively be approaching sponsors to offer refinancings on Barings’ deals.

An excerpt of 9fin’s current list of Barings deals is below, with the full dataset available here.

Along with the uncertainty around the future of Barings’ funds, the move also raises wider questions about whether it's the fund name or fund managers themselves that really matters when attracting LP capital into private credit.

Brand name or the portfolio managers’?

9fin reported on 13 March that 26 people, including former president of Barings BDC and co-head of Barings' global private finance group Ian Fowler and former co-head of Barings' global private finance group Adam Wheeler had joined Nomura-backed fund Corinthia.

Some market participants have raised eyebrows about moving from an established name like Barings. Others point out that it is the managers, rather than the firms, who really make the difference, the bet that Corinthia will have taken.

“At the lower mid-market, having a reputation across Europe puts you at an advantage, because it becomes more than just pricing or terms”, said a senior lender. “People have preferred parties that they like to work with. It's a very small market and everyone knows everyone, both from the lender side and the private equity side.”

In terms of funds, Corinthia has put in place financial backing from Nomura, which has received a minority shareholding in the new platform, according to a press release.

However, it will attract investors other than Nomura, pointed out the source. “There is undoubtedly more than Nomura but it’s not possible to communicate that yet,” they said.

Barings is one of the established lenders in the private credit space, and the departure of its senior leadership to a newly-established fund could shake up the current fundraising environment, which favours big names.

A 9fin analysis found that 2023 private credit fundraising consolidated around ‘household’ names like Arcmont, Ares and Hayfin. Almost 85% of global capital raised in private debt last year went to experienced private credit firms with four or more existing funds. Experienced funds collected around $1.4bn on average for their new funds in 2023, while first-time funds averaged well below $200m.

Market sources have expressed their concerns about the polarisation of access to fundraising.

“LPs are more sophisticated about what they’re looking for in a private credit manager, so the top tier funds are benefiting while the second and third tier are struggling,” said a source.

The challenging environment is causing a flight to quality, and less well-known names have not fared so well. As a debt adviser told 9fin: “Money is available. But it's not being given to everyone.”

A mass exodus

It has now been confirmed via press release that the other departed staff are Mark Wilton, Alice Foucault, Ben Gillet, Joe Buckley, Matt Carty, Magnus Lilja, Sabih Hussain, Priyanka Surya, Camilla Klang, Philip Ashley, Natasha Sahi, Mark Flessner, Brian Baldwin, Salman Mukhtar, Sunny Khorana, Nathan Bourne, Pierre-Henry Quantin and April Gagnon. Also joining will be Volker Samonigg, head of capital relationship and management, Alexander Vaulkhard, and Kelsey Tucker.

In the aftermath of the departures, Barings BDC named Matthew Freund as replacement to Adam Wheeler, Bryan High as head of global private finance in addition to his current role as the firm’s head of capital solutions, Tyler Gately as head of North American private credit, and Stuart Mathieson to lead private credit in Europe and APAC.

However, this does not ‘untrigger’ a key-person clause, argued the source. “Barings saying it has transitioned the management and that everything is fine is a stretch,” said the source. “The key people have left and the clauses are triggered.”

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