“That’s how we’ve always done it,” is one of the most dangerous expressions (according to most corporate rule books). It’s safe, it works and it has lasted the test of time — but is it the best way to operate?

This week we saw a different type of private credit alliance being formed, which seemingly ripped up the established playbook that most of these partnerships follow. Move aside bank/fund tie-ups — advisors and funds are the newest celebrity couple in private credit, courtesy of the agreement struck between Arini and Lazard (just you watch as Azard catches on).

Mathew Cestar, president at Arini, declined to comment on the specific terms of the Arini/Lazard partnership, but told 9fin that it is designed to have the “best hygiene” as possible, with a clear distinction of roles which avoids any conflicts of interest.

“Lazard is responsible for originating opportunities, and Arini independently makes investment decisions,” said Cestar. He added that most conflicts arise when banks and private credit firms lend alongside each other, and where the emphasis is on putting capital to work rather than sourcing the highest quality assets.

“We have seen some balance sheet bank tie-ups where the partnership with a private credit fund is akin to capital relief-style transactions to help the bank retain lender relationships,” said Cestar. “By contrast, to be a Lazard client the bar is set high.”

According to one source, the partnership is based on a preferred provider rather than a right of first refusal approach.

This is different in nature to the partnership between JP Morgan and the trio of Cliffwater, FS Investments and Shenkman Capital, for example. In this case, Bloomberg reported that the fund managers have limited opt-outs, which means they “can only decline to participate in a handful of transactions over a pre-determined period of time”.

The parameters of the agreement between Arini and Lazard means that M&A transactions led by Lazard might yet be financed by third-parties. And Arini can still originate assets independently.

Cestar said that Arini has a 10-person private credit team in place to help with this effort. The focus of the partnership is expected to be in non-sponsored companies across Europe (where Lazard has a strong footprint).

“There are some mega-funds that have raised tens of billions for European direct lending and participate in facility sizes of at least €500m,” said Cestar. “Previously loans that fell below this threshold were very lucrative for banks, but banks are also now seeking much bigger transaction sizes. It’s created a compelling in the true middle-market.”

Arini now kicks off its European private credit business with a steady flow of assets it can cast its eye over, but there are obvious benefits for Lazard too — it enters into M&A advisory pitches with private credit fire-power up its sleeve.

It’s difficult to generalise the various bank/fund partnerships in private credit (read here for our take on how banks are still central to the private credit ecosystem). As one banker put it: “Each partnership takes on a slightly different form.” Fundamentally, a bank brings the goods to the table, the fund brings the cash and everyone walks away happy. Banks can retain key client relationships, and the credit risk sits with those better equipped to hold it.

But, rightly or wrongly, there’s sometimes a suggestion that de-risking the balance sheet means exactly that, the result of which is that some of the spicier assets are those moving into credit fund hands. Those are relatively isolated cases, and it may yet work for both sides. Call it a marriage of convenience.

On paper, the pairing of an M&A advisor with a credit fund appears well-matched. Each party focuses on what it does best, with mutually beneficial outcomes if they decide to transact.

New funds, people moves and private credit CLOs

It’s been an action packed week, which demonstrated how relevant bank/fund partnerships still are, with Macquarie announcing a European direct lending strategy. This effectively confirms details of a report published by 9fin some nine months ago which stated that Macquarie Asset Management will invest alongside Macquarie Principal Finance.

AlbaCore has underlined that there is global appeal for European private credit: it raised $1.8bn at first close for a senior direct lending strategy with anchor investments from the Abu Dhabi Investment Authority and Mitsubishi UFJ Trust & Banking Corporation. (Read our take on how investors in the Middle Eastare gravitating towards private credit strategies on the 9fin platform.)

In fund finance, Barings said it has raised $2.5bn. This strategy extends financing to asset managers against portfolios of corporate credit, real estate credit and secondary portfolios. Barings said that it has executed over $48bn of such financings since 2017 with over 120 facilities provided to more than 55 managers.

The financing tends to be investment grade-rated and is geared towards insurance companies. But, Barings has made clear that it has raised the capital from third-party investors. It’s not known how much its insurance company parent MassMutual has put in to the strategy to supplement third-party commitments.

Elsewhere, Blackstone completed the high profile hire of Dominic Ashcroft, head of leveraged finance for Europe, the Middle East and Africa at Goldman Sachs.

Bloomberg reported that Ashcroft is set to join Blackstone Credit & Insurance in London as head of European private credit origination, replacing Jurij Puth, who has left the firm after 18 years.

Oaktree has also strengthened its European private credit team with Jens Bauer reportedly set to join the firm. He was co-head of direct lending at Permira.

And finally, there’s some visibility on the next batch of European private credit CLOs, with BNP Paribas emerging as the early market leader in this regard. After having arranged the first transaction of its kind in Europe — Barings Euro Middle Market CLO 2024-2 — in November, it has three more mandates.

There are early signs of evolution with evidence of warehouse financing being used and the prospect of these private credit CLOs having the ability to reinvest assets. For full details on the managers breaking into this market, get in touch.

Private credit pipeline

One of our scoops involved a company well-known for its own policy of giving an extra scoop to customers as Five Guys looks to refinance its debt.

EY launched the process earlier this month and is in talks with direct lenders, working off EBITDA of around £75m, as reported.

Private credit funds are keeping a close watch as PAI Partners, Blackstone and KKR make it through as the final three sponsors competing for the buyout of EQT-owned Karo Healthcare.

But three bank trees are competing, pitching around €1.1bn of TLBs.

Private credit is also competing with the syndicated loan market as sponsor Apax seeks to refinance  Rodenstock’s €810m of TLB debt. There may yet be scope for private credit and syndicated to co-exist as part of this transaction.

It’s not all good news though with valuation differences causing 3i to shelve its auction of UK travel agent Audley Travel.

Enjoyed this market wrap? Our customers receive this content ahead of the crowd — find out more about 9fin’s news and analysis.