Even if the value proposition of such tie-ups on the face of it is straightforward, such as banks get to expand their offering to clients and direct lenders get greater deal opportunities, at its core there is a difference in approach to doing business that may mean efforts struggle to get off the ground.

“Getting the alignment of interest is really hard. Why? Bankers want to deploy capital for the sake of their client's benefit to win fee business. So getting in alignment with the how you manage the counterparties is really hard,” Jeff Levin, head of direct lending at Morgan Stanley, said in a panel appearance on Monday.

“The bankers want to say yes to every deal that comes through. The private credit manager providing the capital that has complete discretion on how the money gets invested and is going to want to be really selective. So there's a tension there.”

Levin also pointed to additional points of the origination spectrum where both parties may not see eye to eye. For example, he noted diligence and engagement with management teams may look different for investment bankers than it would for private credit lenders.

“A banker is going to want to shield their client from an in-depth, diligent process that the private credit manager is going to want to do,” Levin said. ”And then on the portfolio management side as well, should a credit go poorly, the banker is not going to want to have a difficult lender within the capital structure, pressing the management team, so on, so forth.”

For the underlying borrower, there are added expenses compared with dealing with a single entity. And in today’s market where sponsors are laser-focused on keeping expenditure down, such terms could be costly in the bank-private credit fund partnership winning the deal.

“I don't need an intermediary in there structure something for me, to fund it, for me to have that bank operate, back office operations, to trade it, or do any of these things that kind of result in that fee scheme, which is just more expensive to the end borrower,” said Nicole Drapkin, managing director at Blue Owl, a firm without a bank lending partnership, speaking on the same panel.

Moreover, Drapkin is noted that the benefits of a bank arrangement may not outweigh the pluses of acting independently. Without the bank, private credit firms can provide that flexibility they are famed for.

“I'm never relying on an investment bank to do my diligence for me. If I am, my LPs shouldn’t be investing with us. They should be going somewhere else. More than that, a lot of the kind of flexibility and the way we're able to drive increased returns is exactly by showing up with a full source solution,” she said.

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