Lest we forget that much of private credit’s boom after the 2008 financial crisis gained momentum from the hardening of regulations over banks, such as the Dodd-Frank Act. A settled regulatory landscape helped the market flourish and it hardly emerged as an issue for the industry over the last decade.

But that growth has now put the asset class on the regulators' radar. This time around 12 months ago lenders began sounding the alarm on regulations, as 9fin reported.

Regulation, once an afterthought, is now becoming a prominent issue for managers as the election nears, as new data from Dechert shows.

According to a survey conducted by the law firm, 47% of surveyed lenders said a change in the US presidential administration could bring uncertainty and volatility to the private credit market, and 24% expect it could result in a more favorable regulatory environment for private credit. Another 14% responded that the outcome could be of an increased regulatory scrutiny.

Quite what any new regulation might look like or what might be repealed is so far unclear. All we have to work off is the vibes of both parties, but a more relaxed regulatory landscape is the good vibes lenders may be looking out for.

“Even if there's not necessarily specific regulation, a change in the tone and how reactive they are to potential novel regulations might be beneficial for the industry,” Jonathan Gaines, a partner at Dechert, said regarding the prospects of a more favorable regulatory environment.

We’re likely not to have clarity until after the election, for private credit is hardly a top issue. But as some of the big wigs in private credit said that come what may they should be able to absorb any extra costs relating to compliance.

“The big guys should welcome regulation,” is what Sixth Street’s Josh Easterly said at last year’s DealCatalyst event.

Quite what it means for the fate of smaller firms we’ll have to wait and see.

LP excitement

Funds raised by direct lending funds globally were down a third from the first half of last year, 9fin reported last week.

Does that necessarily mean there is less excitement for the asset class than in years past? It can be a hard claim to make when Ares’ latest fundraise is almost at $20bn the firm’s third senior direct lending which it expects to close next month. It comes off the back of a huge sum amassed by Goldman Sachs, which hit $13bn, 9fin reported. Both these announcements suggest there is still a lot of excitement.

And a new report from Coller Capital suggests there is appetite from LPs to commit capital to the asset class as well as increase allocations in the next couple of years. Allocations have already been increasing but Coller’s Private Capital Barometer report found that 45% of LPs it surveyed were planning further increases in the next 12 months, the most of any asset class.

Where that capital goes within private credit is another matter. Only 38% of LPs said they would increase portfolio weighting to vanilla direct lending, with the remainder saying they wouldn’t.

LPs are increasingly turning towards asset financing strategies instead. Take the $75m commitment Los Angeles Water and Power Employees’ Retirement Plan made to Victory Park Capital’s second asset-backed investment fund this week — the lender is on its way to raising $2.5bn for the strategy.

It is worth noting that 70% of LPs surveyed still said senior direct lending is expected to be the most attractive credit investment. Mezzanine lending and distressed debt also received more than 50% of LP votes in this category.

And good news for newer managers, of which there are more every week it seems (see here, here, and here). Over 60% of investors surveyed said they planned to commit capital to a new private credit manager relationships over the next couple of years. There is some hope for firms that don’t carry the name recognition of Ares and Goldman in the space.

Individual investors

For the individual investor there are today multiple ways of entering into private credit investing. But if BDCs are a little too staid in this world of NFTs and GameStop stock, perhaps investing via the blockchain might be more to your liking.

This week, Figure Technology Solutions — primarily a home equity line of credit non-bank lender — launched Figure Connect, a blockchain-based marketplace of private credit loans.

It’s not the first, as we’ve noted before an effort from Build Asset Management has sought to bring crypto investing to direct lending and Hamilton Lane launched a fund to provide access to investors to private markets through investing in digital assets. Figure’s strategy is to bring consumers together, as both borrowers and lenders and then facilitate the development of a secondary market for trading such loans.

The platform standardizes the origination process for sellers and buyers within the firm’s ecosystem, Michael Tannenbaum, CEO of Figure, told 9fin via email. The platform handles all forward commitments from buyers, pricing, and documentation which allows for efficiency in the process.

“The blockchain ensures the immutability of all of the underlying data of loans in the marketplace,” Tannenbaum said. “This allows us to fully automate the origination process, making the loan transaction process faster and cheaper.”

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