(Bloomberg) — Wells Fargo & Co. and Centerbridge Partners are joining forces on a direct-lending fund, the latest in a flurry of bank efforts to gain share in the $1.5 trillion private-debt market.
The fund will target at least $5 billion, including $2.5 billion in equity commitments, and will primarily make senior secured loans to non-sponsor-backed middle-market firms in North America, according to a statement Tuesday. Centerbridge created a subsidiary called Overland Advisors to manage the business development company, which is an investment vehicle popular in private credit. Wells Fargo, the fourth-largest US bank, will provide client sourcing and a minority investment.
The Abu Dhabi Investment Authority and British Columbia Investment Management Corp. are among anchor investors that have provided nearly $2 billion in initial equity commitments, according to the statement.
Wells Fargo joins a growing list of banks muscling into the private credit space in recent weeks. Earlier this month, Societe Generale SA announced a partnership with Brookfield Asset Management Ltd., and Deutsche Bank AG launched a dedicated private-debt fund. Meanwhile, JPMorgan Chase & Co. and Barclays Plc have both earmarked cash from their own balance sheets to compete on deals.
“With Overland, there’s another option to finance that transaction that allows that client to keep their existing relationship with their banker in a way that doesn’t have the same friction or switching costs that they would if they went to another direct lender,” David Marks, executive vice president of Wells Fargo commercial banking, said in an interview.
Private credit has erupted in popularity in recent years, first as investors sought higher-yielding assets in a low-rate environment and then amid rising interest rates globally, as many private loans are floating-rate. That’s threatening a key revenue source for traditional lenders, who have historically arranged and then sold the debt.
The move marks a new strategy under Wells Fargo Chief Executive Officer Charlie Scharf, who has been remaking the firm since taking the helm four years ago. The San Francisco-based company, which has a sprawling commercial bank, had $229 billion in commercial banking loans on its balance sheet as of June 30.
“We are continually focused on finding ways to best serve our clients, and Overland can offer them options for alternative capital structures that can be used to pursue a broader set of growth and value creation initiatives across a variety of market conditions,” Scharf said in the statement.
New York-based Centerbridge invests across private equity, private credit and real estate, and had about $36 billion in capital under management at midyear.
“What Overland is doing is taking direct lending from a transactional, Wall Street approach and bringing it to a relationship, Main Street approach,” Centerbridge co-founder Jeff Aronson said in an interview.
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