Jane Genova’s Post

Considering getting a rating for your sub-line to enhance RWA efficiency? Don't take my word for it, see this recent article by Mark Ward from Barclays Investment Bank. 🌍 Subscription Lines in Private Markets: A New Era of Credit Ratings Subscription lines have long offered private market funds crucial flexibility, speed, and potentially higher returns—and demand is soaring. Now, credit ratings are transforming these essential tools across the UK and Europe, unlocking new benefits for General Partners, Limited Partners, and banks. Why It Matters: • Improved Bank Capital Efficiency: Credit ratings streamline capital requirements, allowing banks to lend more effectively. • Increased Non-Bank Participation: Rated lines attract non-bank lenders like insurance companies, expanding capital access. • Enhanced Market Confidence: A public rating signals fund strength, providing credibility and growth potential. Preparation and early engagement with rating agencies are critical to maximizing these benefits. 🌐 https://lnkd.in/eUF835GZ #PrivateMarkets #SubscriptionLines #CreditRatings #FinanceInnovation #AlternativeInvestments #Banking #FundManagement #CapitalMarkets #InvestmentInsights #PrivateEquitySub

Bank of England orders Barclay's to review leveraged finance business. There are some troubling aspects of this article. In particular that banks don't have a good handle on their exposure to Private Equity/ leveraged finance. While increasing regulation of bank lending to the leveraged finance/Private Equity business is potentially a good thing, the increase in regulation can trigger the very risk the regulatory focus was meant to prevent. In other words: Is the risk already so embedded in the system, that the regulators are too late? A brief story from my past: I worked for a small Savings and Loan (owned by Bill Simon, the father of the LBO) in the late 80s. As was the case with many S&Ls our S&L was loaded up with junk bonds. Regulators passed a law requiring all S&Ls to liquidate junk bonds within 5 years and banned all purchases by S&Ls. This radically changed the supply and demand dynamics and contributed to the very risk it was meant to prevent - the collapse in the junk bond market. Our S&L liquidated our junk holdings right away, which saved us as the junk market continued to collapse. S&Ls who decided to leverage the 5 year deadline ended up failing. Some troubling takeaways from this article: "It comes as the PRA [Prudential Regulatory Authority] has found a number of banks were unable to measure their exposure to private equity giants and their portfolio companies and ordered them to begin stress testing those relationships in recent weeks." “On stress testing, unfortunately I do not have a huge amount to say,” Rebecca Jackson, the PRA’s executive director for authorizations, regulatory technology, and international supervision, said at the time. “Not because we found that firms are excellent at it, or because we think it’s unimportant, but because we found that hardly any banks do it well in this context. Very few firms carry out routine, bespoke and comprehensive stress testing for aggregate sponsor related exposures.” "The central bank’s Financial Policy Committee warned in March that it has seen an increasing number of private equity sponsored companies turn to “amend and extend” agreements, where companies push back payment dates rather than try to refinance the debt at a higher rate. These deals and others like it may increase the risk of “larger than expected credit losses being incurred in the future,” the committee warned at the time." #banking #prudentialregulation #leveragedfinance https://lnkd.in/dKqj65Qi

Engaging Insights at S&P's Private Credit Event: How Changing Market Conditions Are Shaping Private Credit Market A key question explored was: Why are Limited Partners (LPs) increasingly drawn to private credit? Stricter banking regulations are making it harder for traditional banks to satisfy the growing demand for loans across economies. This has opened new opportunities in private credit, though navigating the space has become more challenging due to surging demand and shrinking spreads, with pricing floors hitting historic lows—particularly in developed markets. However, the story is different in emerging markets. With a wide array of potential investment opportunities, we can selectively choose the top transactions, securing favorable terms with the right collateral, covenants, and structures. A very interesting panel of private credit professionals:

The private credit market is witnessing a significant shift, as more banks are partnering with private credit funds to tap into new opportunities. Recent deals, such as J.P. Morgan's collaboration with Cliffwater, FS Investments, and Shenkman Capital, and Mizuho’s minority stake acquisition in Golub Capital, demonstrate how traditional banks are increasingly embracing private credit. But what’s driving this trend? 1. The Regulatory Divide Banks operate under heavy regulatory oversight, which limits their lending capabilities. With stringent requirements from bodies like the OCC, FDIC, and the Federal Reserve, banks must adhere to capital limits and compliance measures. On the other hand, private credit funds, which source cash from institutions and high-net-worth individuals, face far fewer regulations. This lack of oversight enables private credit funds to move faster, be more profitable, and operate with greater flexibility than traditional banks. 2. A “Shadow Banking” System Private credit funds have carved out a space that functions as a “shadow banking” system. With fewer regulatory constraints, these funds are stepping in where banks have traditionally played a dominant role. As Apollo’s CEO Marc Rowan recently stated, the reign of Wall Street banks is waning, with private credit poised to take over. 3. Bank Partnerships with Private Credit Funds Rather than compete, many banks are now opting to partner with private credit funds. This trend allows banks to co-invest in private credit loans while adhering to regulatory restrictions, like the Volcker Rule, which limits their investment in private funds. Partnerships between Citi and Apollo Global, HSBC’s private credit fund, and Barclays’ collaboration with AGL Credit Management are just a few examples of how banks are aligning themselves with private credit. 4. Private Credit’s Role in Fund Finance As banks pull back from fund finance due to crises like the regional banking crisis of 2023 and the Basel III Endgame, private credit funds are filling the gap. NAV loans, traditionally led by banks, are now being heavily funded by private credit players such as 17Capital and Crestline Investors. With higher margins and deep expertise in understanding fund finance risk, private credit funds are well-positioned to dominate this space. As the financial landscape evolves, we can expect more partnerships between banks and private credit funds, especially as private credit continues to reshape the fund finance market. #PrivateCredit #BankingPartnerships #FundFinance #PrivateEquity #CreditInvesting #FinancialInnovation #InvestmentTrends

How is the UK RMBS market changing now that many high-street banks and building societies have returned? With cheap central bank funding schemes winding down, high-profile lenders like Lloyds and Nationwide are back in the prime #RMBS sector to much acclaim. But there are questions around the extent of their impact and how the ripples will be felt across the market.   Will these prime issuers pave the way for a thriving and robust market? Is the question for treasurers now just which is tighter, RMBS or covered bonds? How has Nationwide’s ‘stock and drop’ innovation to speed up issuance changed things? Or will slow structuring and high legal costs mean securitization remains a mere diversification play? “We have a very good opportunity right now as the UK is revising its securitization framework to be able to make it more competitive and level out the playing field between UK RMBS versus covered bonds.”, says Harry Choulilitsas, director, structured credit syndicate — Europe and UK at Natixis Corporate & Investment Banking.   GlobalCapital welcomed an exclusive group of securitization issuers and #investors for a private GC Live briefing to discuss - download our special report to see what they think lies ahead. Download the special report: https://lnkd.in/e2f746GR Participants: - Harry Choulilitsas, director, structured credit syndicate — Europe and UK, Natixis Corporate & Investment Banking - Gordon Kerr, managing director, head of European research, Kroll Bond Rating Agency (KBRA) - Gavin Parker, head of securitization and collateral, group corporate treasury, Lloyds Banking Group - Aza Teeuwen, partner, co-head ABS, TwentyFour Asset Management LLP Moderator: - Tom Lemmon, global securitization editor, GlobalCapital Sponsored by KBRA, Latham & Watkins, Natixis Corporate & Investment Banking #securitization #centralbanks

I've written a lot about MiFID II unbundling and its impact over the years, and how the sell side is reacting, but I've neglected one area: how we see corporates and IR teams reacting. It's changing the relationship between corporates and the sell side, and I believe there are huge opportunities for investment banks to evolve how they cover and engage with corporate clients. More thoughts here: https://lnkd.in/gwjw29Mr

As highlighted in The Australian Financial Review the private credit market has experienced significant growth over the past 5 years. The emergence of numerous new entrants has led many to perceive this sector as 'low risk'. The belief in its low risk is rooted in the absence of experiences during events like the GFC or the 90s recession, where property prices fell by 40%. Success in a thriving market is within reach for many, but the true measure lies in how operators anticipate and prepare for a downturn. When partnering with a private credit operator, it is crucial to ensure they have a solid grasp on how to manage risks, especially in challenging market conditions. #PrivateCredit #MarketGrowth #RiskManagement #HistoryMatters #FinancialIndependence #NonBank

If ever there was an infographic I wish I'd created to explain to my colleagues and clients what the FCA (IOSCO, Bank of England and PRA) are attempting to solve for in relation to #privateEquity and #privateCredit - then here it is. The related #FCAprivatemarketvaluationreview is underway and firms concerned will need to justify the adequacy of their control frameworks, governance and oversight in order to meet evolving [risk adjusted] regulatory expectations in this regard. We can help. Feel free to reach out. #continuationfunds; #navlending; #adhocvaluation

Super reading for all of us in #trade #finance shared in today's Financial Times by one-and-only Huw van Steenis, vice-chair at Oliver Wyman, and entitled "Is the boom in private credit losing steam? Leading players look to partner with banks rather than be their adversaries" -> "Today, new private credit structures are giving investors access to assets previously confined to banks’ balance sheets such as equipment finance." -> "... new regulation aimed at addressing banks’ vulnerabilities can inadvertently push even more lending elsewhere." -> "... the need to secure access to these new asset classes explains why private credit players are changing tack, looking to partner with banks rather than be their adversaries." -> "What we are seeing is the re-tranching of the banking system where banks parcel the riskiest slice to private credit, providing less risky lending themselves." #tradefinance #distribution TFD Initiative Full piece: https://lnkd.in/esbBECNs

The article highlights the complexity and risks associated with different types of lending to PE within the banking ecosystem. I found it a bit oversimplified and lacking empirical evidence but the concerns about the high leverage in private equity markets, are valid and there is a need for better clarity on leverage and its risks.