Partnerships with banks offer a 'competitive edge' to private lending companies
Regional Banks and Private Credit Firms Form Strategic Partnerships to Expand Deal Sourcing
In a report published by Deloitte, a leading auditing firm, it is suggested that partnerships between regional banks and private credit firms could offer a strategic advantage for sourcing deals. These partnerships are designed to help private credit firms secure lending opportunities by providing access to mid-market companies that are typically underserved by larger banks or public markets.
The key benefits of these partnerships include:
- Access to High-Quality Deal Flow: Regional banks, with their established relationships with midmarket companies, offer private credit firms an efficient channel to source loans and credit deals that may not be readily available elsewhere.
- Complementary Expertise and Resources: Regional banks often hold senior tranches of loans while private credit firms take on other loan parts, which allows for an expansion of risk exposure and lending volumes without breaching regulatory capital limits.
- Preservation of Client Relationships for Banks: Banks maintain long-term borrower relationships and generate fee income through deal arrangement and ancillary banking services, benefiting their business model.
- Operational Efficiencies through Technology and Collaboration: Seamless joint loan origination and servicing via technology platforms provide a competitive edge for private credit firms in deal execution and relationship management.
- Market Differentiation: Regional banks compete to partner with private credit firms based on geographic reach, asset presence, ease of collaboration, and technological integration, which private credit firms can leverage strategically.
These partnerships create a "force multiplier" effect, allowing each party to play to its strengths—banks serve as trusted originators with borrower access and credit firms provide alternative capital and flexible funding—thereby reshaping the corporate lending landscape and accelerating private credit growth.
Deloitte predicts that the strategy of joint venture model-based partnerships may continue to grow, potentially leading to increased adoption. This growth is driven by the continued growth of private credit and the accumulation of uninvested commitments from limited partners, which has resulted in increased competition among private credit firms.
AssetMark, a financial services company, has also announced an expansion into private markets, further indicating the growing trend of partnerships between banks and private credit firms.
In summary, these strategic partnerships deepen access to a broader borrower base, improve the quality and quantity of deal sourcing for private credit firms, and foster strategic collaboration that enhances capital deployment while managing regulatory and risk considerations effectively.
- The partnerships between regional banks and private credit firms, as stated in the Deloitte report, can serve as a strategic means for private credit firms to access high-quality deal flow from mid-market companies that are often overlooked by larger banks and public markets.
- The growth of the private credit industry and the accumulation of uninvested commitments from limited partners are driving the increase in adoption of strategic partnerships between banks and private credit firms, as suggested by Deloitte's predictions.
