BAM-T and French bank Société Générale S.A. are launching a new private debt fund that aims to invest up to €10billion over the next four years, capitalizing on rising interest in high-grade private loans at a time when traditional lenders are pulling back.
The fund will be established with €2.5 billion and will focus on making loans to investment-grade companies in industries like power, renewable energy, data and transportation, as well as providing fund financing.
The partnership between the Canadian-based manager of global assets and the prominent Paris-based bank is the latest move into a fast-growing, US$1.5-trillion market for private credit. By prioritizing high-quality debt, they are seeking to draw in interest from selective investors like insurance companies that are increasingly allocating part of their assets to private loans.
Brookfield plans to invest in its own capital as well as funds from institutional clients in the new private debt fund, and sees 'a tremendous opportunity within the investment grade market to support critical industries that underpin the global economy,' said Bruce Flatt, chief executive officer.
High interest rates have caused adverse effects on private equity and commercial real estate, resulting in some banks cutting back on lending. Although private credit is seen as an opportunity, it's seen as a potential option, as most loans carry floating interest rates and become more lucrative as rates rise. Last year, private debt funds raised nearly $226-billion, up from $218billion in 2021 to $218billion in the United States, according to data from Preqin.
Brookfield and Société Générale have been working together in private debt markets for years, including as collaborators and competitors. Although Brookfield typically pursued very low-risk, investment-grade lending to private clients, Brookfield has operated more in the market that generates higher returns.
Brookfield is investing in its credit business, which has US$197-billion of assets under management and US$152-billion in capital that earns fees, primarily through its majority stake in Oaktree Capital Group LLC. The business's bedrock has been providing senior credit and debt in real estate and infrastructure, originating about US$50 billion annually to sectors such as offices, transport and logistics. Brookfield has enlarged its offerings in recent times and has also established private debt funds, focused on renewable energy, private equity and corporate lending.
While the market for investment-grade loans is less lucrative, the market for investment-grade lending is much larger, giving Brookfield and Société Générale the chance to increase the size of their new fund over time by bringing in investors looking for exposure to highly rated debt.
As banks are under pressure to safeguard their capital in the face of tougher economic conditions and tougher regulations, they are increasingly working with asset managers to originate private loans together, combining their distribution networks and client relationships. The British bank Barclays Plc and the U.S.-based lender AGL Credit Management LP are also close to striking a partnership to invest in private credit, according to Bloomberg News.