Nuveen Private Capital executives said attractive opportunities in the private credit industry are resulting in increased interest from institutional investors.
The private debt management division of Nuveen Investments, which is comprised of New York-based Churchill Asset Management and London-based Arcmont Asset Management, highlighted in an Oct. 25 roundtable that pricing for mid-market, direct-lending transaction loans has improved due to unlevered all-in yields reaching about 12%.
In turn, Nuveen Private Capital has been able to raise $72 billion in capital to drive growth. Nuveen Investments has $108 billion in private capital assets under management and $1.1 trillion in overall assets under management as of June 30.
There are headwinds. Yet, even with concerns about the geopolitical turmoil, Arcmont CEO Anthony Fobel said that "the markets just seem to have shrugged it off," pointing at how oil prices after the attack on Israel receded to where they were beforehand, as did gas prices after Russian turned off supply following its invasion of Ukraine. Seeing a "non-recessionary environment" for 2024, he said that "small recession are not a bad thing" given the opportunity to invest, adding that the management firm models recessions before making loans.
"We're in a different environment now where private credit is a mainstay of the financing universe that companies look at," Fobel said.
Churchill CEO Ken Kencel, who has noted that private credit is in a "golden age," said given higher rates, investors are seeing lower risks. This is a result of "better covenants, better overall structures, lower leverage (and) significantly more equity," with Kencel adding that Churchill had looked at a deal with a private equity firm contributing equity as high as 72%.
With the global private credit industry currently at about $1.6 trillion, Kencel said the market estimate over the next five years would be about $2.6 trillion, which he noted is "pretty good."
He added that growth could accelerate as banks move away from areas such as asset-based lending due to the regional banking crisis, which saw the failures of Silicon Valley Bank and First Republic Bank.
Direct lenders are going to start to "do more and more in traditional banking areas, like asset-based loans, and even things like credit cards, auto loans and certainly healthcare receivables," Kencel said, adding that private credit will "play increasing role there, too."
After getting institutions to adopt private credit over the past decade, Kencel said the big trend over the next 10 years will be extending access to the space to individual investors by means of business development companies and closed end funds. Private debt managers will be educating individual investors on what they do, he added.
"From a lender's perspective, these are well capitalized, significant businesses that are getting the benefit of strong structures, underlying pricing and, interestingly, because the liquid loan market has basically been dormant for a year and a half, we're seeing larger companies access private credit and direct lending," Kencel said.
In Europe, Fobel said an extraordinary pickup in deal models also contributed to better pricing.
Additionally, he added that U.S. investors, particularly pension funds and insurance companies, are seeking diversification, explaining that Arcmont would "hedge all the European currencies back to U.S. dollars." He said investors are not worried about hedging due to net U.S. dollar returns in Europe being very similar to the U.S. but with more international exposure.
