Jess Larsen, founder of Briarcliffe Partners, discusses the surge in investor interest in private credit. Topics covered include the easing denominator effect, underperformance of private equity, challenges in asset-based lending, competition and differentiation in direct lending, adapting to the growing market, and the role of high net worth individuals and retail investors.
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Quick takeaways
Placement agents play an important role in connecting private credit funds with institutional investors, helping them discover lesser-known funds deserving of capital.
Private credit is experiencing significant growth due to its strong performance in the low interest rate environment and offers a wide range of strategies for attractive returns throughout different economic cycles.
Deep dives
The Role of Placement Agents in Private Credit
Placement agents in private credit act as intermediaries between private credit funds and institutional investors. They identify and select potential private credit funds that need to raise capital and help them raise funds from institutional investors. The role of placement agents is important in a growing market with numerous private credit funds, as they help investors discover lesser-known funds that are deserving of institutional capital.
Challenging Fundraising Environment for Private Credit
Fundraising in the private credit space has become more challenging, with the market experiencing its toughest period in seven years. However, compared to private equity, private credit has been managing relatively well. The fundraising environment has been impacted by various factors, including the denominator effect, market volatility, and interest rate hikes. The slow distribution and lack of M&A activities in private equity have also affected the fundraising landscape for private credit, as limited partners have less cash to allocate.
Growth and Outlook for Private Credit
Private credit is experiencing significant growth, with the market expected to surpass private equity in 10 years. The low interest rate environment has contributed to the strong performance of private credit, and it is predicted to continue to outperform as interest rates normalize. The market offers a wide range of strategies, providing investors with predictable and attractive returns throughout different economic cycles. While bigger firms have an advantage in raising funds, niche strategies like asset-based lending and opportunistic credit present opportunities for smaller funds to succeed.
Secondary Market for Private Credit
The secondary market for private credit is gaining traction, providing investors with opportunities to invest in existing portfolios of loans rather than blind pools. Sophisticated LPs find the secondary market appealing due to reduced blind pool risk and potential discounts on acquired loans. While the private credit secondary market is still relatively small, LPs are increasingly interested, especially as the market matures and faces potential defaults and distressed situations.
Jess Larsen is in the right place at precisely the right time: after a tough period last year, investor interest in private credit is exploding once again, and his placement agency Briarcliffe Partners is perfectly positioned to benefit from this surge in popularity.
The denominator effect is easing, and LPs are once again finding room for private credit. The asset class gives investors an attractive way to benefit from higher interest rates, but its popularity is also to do with the underperformance of private equity and a proliferation of new strategies.
For this episode of the podcast, we invited Jess to the studio to talk about a rollercoaster year for private credit — and to celebrate the official launch of 9fin's new Private Credit product!
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