Private Markets Grapple with Supply-Demand Imbalance | Weekly Pulse

📈 Must Know: Private Credit's Capital Abundance Problem

💰 Too much money chasing too few good deals as returns compress

Bottom Line: Private credit faces an unprecedented challenge - record fundraising has created capital abundance, but limited borrower appetite and reduced private equity activity are compressing spreads and threatening returns.

Why It Matters:

• 💸 Sixth Street's Josh Easterly warns: "Imbalance between supply and demand" puts pressure on spreads

• 📉 BDC returns expected to fall from 14.9% (2021) to just 5.2% at current spreads

• ⚖️ Apollo's Marc Rowan acknowledges "too much capital without enough opportunity"

Big Picture: The surge in private credit fundraising from traditional asset managers, banks, and retail expansion has created fierce competition for deals just as private equity - a key borrower source - struggles with exit challenges. This threatens the industry's ability to deliver promised returns to the retail investors now being courted.

💰 By The Numbers

🎯 $5.5 billion - Record private credit deal for Clearlake's Dun & Bradstreet acquisition led by Ares

💼 $3.4 billion - Private credit financing for Consumer Cellular led by HPS Investment Partners

🌐 $1.6 trillion - Total size of global private credit market

🔄 $1.3 billion - Venture debt fundraising collapsed 63% from 2023's $3.5 billion peak

🎯 $574 million - Invictus Growth Partners raised for second flagship fund targeting AI-powered software

⚠️ 5.2% - Forward BDC return estimate vs. 14.9% achieved in 2021

📊 $1.2 trillion - Bank loans to non-bank financial institutions (up 20% year-over-year)

🏫 $1 billion - Harvard selling private equity stakes on secondary market for liquidity

🌟 $950 million - Barings collected for diversified alternative equity program

💼 25.5% - KKR's gross IRR since 1976 inception (but reality is closer to 12% over 20 years)

🔍 80-85 cents - Typical secondary market discounts for private equity stakes

🌍 Market Spotlight: Regional Developments

🇦🇺 Australia

Private credit retail push expands - Growing number of managers launching credit vehicles for affluent locals, with estimated $1 trillion capital pool. Coller Capital launched private credit secondaries fund targeting individuals.

🇸🇬 Singapore

Regulatory framework proposed - Monetary Authority seeking feedback on framework granting retail investors private market access with proper safeguards.

🇭🇰 Hong Kong

Tax scrutiny intensifies - 50% increase in funds seeking guidance on IRD inquiries over past 24 months as authorities ramp up collection efforts amid budget deficits.

🇯🇵 Japan

First online platform launches - Keyaki Capital debuts country's first online investment platform targeting wealthier individuals, estimating potential 47 trillion yen market.

🇺🇸 United States

SEC signals broader access - Chairman Paul Atkins announced plans to reconsider restrictions on funds investing 15%+ in private assets, potentially opening $31 trillion market to more investors.

Trump administration weighs 401(k) directive - Executive order under discussion to pave way for private equity in $9 trillion US retirement market, with potential instruction to Labor/Treasury departments.

Systemic risk warnings emerge - Boston Fed report highlights that $1.2 trillion in bank loans to private credit firms could pose systemic risks during downturns.

🇺🇸 University Endowments Under Pressure

Ivy League liquidations accelerate - Harvard, Yale, and others selling private equity stakes at 15-20% discounts amid federal funding cuts and potential tax hikes from 1.4% to 21%.

🇺🇸 Ratings Scrutiny Intensifies

Conflicts of interest questioned - Industry executives compare private credit ratings to students choosing their own teachers, with smaller agencies accused of inflating grades to win business.

🇫🇷 France

Natixis enters market - French institution in talks to set up $1.5 billion direct lending fund, following other European banks' initiatives.

🤝 Deal Spotlight: Transactions & Strategies

🏢 Clearlake's Record Dun & Bradstreet Deal

• Size: $5.5 billion private debt (largest on record)

• Lead: Ares Management Corp.

• Structure: $5 billion term loan + $500 million revolver

• Rate: 5.5% over SOFR, 99 cents on dollar

• Strategy: Replaced $5.75 billion bridge loan, saved ~$100 million in fees

📱 Consumer Cellular Refinancing

• Size: $3+ billion led by HPS Investment Partners

• Participants: Blackstone, Public Sector Pension Investment Board

• Structure: $3.4 billion term loan + $200 million revolver + $525 million preferred equity

• Purpose: Refinance syndicated loans, pay dividend to GTCR

⚡ Apollo's PowerGrid Acquisition

• Size: ~$1 billion debt package for $2 billion purchase

• Lenders: Brookfield, Blackstone, JPMorgan direct lending

• Structure: $650 million term loan + $200 million delayed-draw + $125 million revolver

• Terms: 7-year maturity, 4.75% over benchmark

💼 Invictus Growth Partners' AI-Focused Fund

• Size: $574 million across Fund II ($488M) and co-investments ($86M)

• Strategy: Lower middle-market enterprise software with AI focus

• Target: Companies with $10M+ annual recurring revenue

• Innovation: In-house AI system "Diane" for deal sourcing since 2019

🏫 Harvard's Secondary Market Exit

• Size: ~$1 billion private equity stakes sale

• Context: Federal funding cuts of $2.6 billion, potential tax hikes

• Buyer: Lexington Partners managing the transaction

• Purpose: Ensure appropriate cash levels for capital calls

🏗️ Barings Alternative Equity Program

• Size: $950 million across commingled fund and separate accounts

• Participants: Maryland State Retirement ($250M commitment)

• Focus: Smaller PE deals, infrastructure in energy/digital/transport

• Strategy: Targeting newer managers for outsize returns

💼 Fundraising Focus: Capital Formation

🎯 Beach Point Capital Management

$1.25+ billion raised for opportunistic credit investing

🌏 Elham Credit Partners

$700-750 million anchor commitments for inaugural private credit fund (Hillhouse Investment arm)

🇫🇷 Natixis Direct Lending Fund

$1.5 billion target for entry into asset class

📊 Collateralized Fund Obligations Surge

• Ares and Carlyle's AlpInvest issuing new CFO deals this week

• Coller Capital completed $2.4 billion CFO last month

• Thrivent used CFO to rebalance private equity exposure

🏦 Bank Partnerships Expanding

• Sumitomo Mitsui launched European private credit fund last year

• Natixis moving beyond $25 million balance sheet tickets

🧠 Industry Insights: Strategy & Outlook

⚠️ Capital Abundance Creates New Challenges

WSJ's Telis Demos identifies core problem: Private credit managers have "no shortage of money" but lack "good places to put it" as reduced private equity activity limits borrower appetite.

Sixth Street's Josh Easterly warns of dangerous imbalance: "The industry has been beating the drum on M&A returning partly to justify the amount of capital they've raised. The problem is that people paid too much for assets between 2019 and 2022."

Apollo's strategic response: Despite tight spreads, raised record funding-agreement-backed notes through Athene, with $20 billion in cash waiting for better opportunities.

📊 IRR Inflation Concerns Mount

Oxford Professor Ludovic Phalippou exposes mathematical flaws: Claims of 25%+ returns "defy laws of mathematics" - KKR's reported performance since 1976 would theoretically be worth $13 trillion today.

Reality check on returns: KKR's 20-year "horizon IRR" closer to 12%, Yale's PE portfolio 11.5% - much closer to public market returns.

🚨 Systemic Risk Warnings

Boston Fed raises alarm: Bank lending to private credit ($1.2 trillion, up 20%) could pose systemic risks if funds simultaneously draw on credit lines during market stress.

Ratings integrity questioned: Industry executives warn of "ratings shopping" where issuers choose agencies, creating conflicts reminiscent of 2008 subprime crisis.

🛡️ Retail Investor Protection Concerns

Thoma Bravo's Orlando Bravo cautions: Retail investors risk being "saddled with worst assets" as continuation vehicles allow firms to offload unsellable companies to less sophisticated investors.

UK experience sobering: St James's Place KKR fund returned just 0.6% vs. 8%+ for FTSE 100, holding 30% cash to maintain daily liquidity.

🔮 Trends to Watch

💰 Capital Abundance Paradox

Too much money chasing too few deals as traditional borrowers struggle with high asset prices and exit challenges

🎓 University Endowment Liquidations

Ivy League institutions selling PE stakes at steep discounts amid funding cuts and potential tax increases

📊 IRR Metrics Under Fire

Growing scrutiny of inflated internal rate of return claims that mathematically "defy reality" according to academic analysis

🏛️ Regulatory Push for Retail Access

Both SEC and potential Trump executive order opening private markets to broader investor base despite protection concerns

⚠️ Systemic Risk Recognition

Federal Reserve warnings about bank-private credit interconnections creating new channels of financial system risk

🔍 Ratings Integrity Questions

"Ratings shopping" concerns echo 2008 subprime crisis as issuers choose agencies creating potential conflicts of interest

📉 Venture Debt Collapse

63% fundraising decline despite private credit boom as startup valuations reset and returns disappoint

🔄 Secondary Market Surge

University endowments and institutions increasingly selling stakes at 15-20% discounts to raise liquidity