Wells Fargo and Centerbridge team up on $5bn private credit fund

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As banks scramble to find a foothold in the fast-growing private credit industry, Wells Fargo has partnered with asset manager Centerbridge to launch a $5 billion private credit fund that will lend to mid-sized U.S. companies.

The bank, the fourth-largest U.S. lender by assets, said it would invest in the new vehicle along with Centerbridge, sovereign wealth fund Abu Dhabi Investment Authority and Canadian pension fund British Columbia Investment Management.

The new fund targets $2.5 billion in equity commitments, of which Abu Dhabi Sovereign Wealth Fund and the British Columbia Pension Fund have donated approximately $2 billion.

Wells Fargo and other banks are trying to define their role in the $1.5 trillion private debt market, which has been dominated by alternative asset managers such as Apollo, Ares and Blackstone.

These alternative money managers are now lending to large corporations, chipping away at banks’ dominance of the corporate lending market.

However, traditional lenders have struggled to determine how much to push private credit because loans can be risky and illiquid and most banks don’t want to hold debt on their balance sheets.

At the same time, volatile public markets are forcing more and more companies to abandon traditional bond and loan issuance and turn to private credit. Companies including AT&T, PayPal and Air France-KLM have in recent months turned to the growing private credit industry for financing.

Wells Fargo’s announcement comes days after Société Générale announced it would partner with asset manager Brookfield to set up a private credit fund. Barclays is in talks with asset manager AGL over a fund that would provide the British bank with access to the asset class, according to two people familiar with the matter.

Other banks are using their own balance sheets, and most lenders have been wary of the strategy because they often have to hold large amounts of capital given the risks of the loans. According to people familiar with the matter, JPMorgan Chase has set aside at least US$10 billion of its own capital to invest in this area.

The Wells and Centerbridge funds will be formed as a business development company and named Overland Advisors. It will rely on Wells Fargo to help source companies with loans.

Charlie Scharf said: “As we continue to look for ways to best serve our clients, Overland can provide them with the choice of alternative capital structures that can be used to pursue broader growth and value creation initiatives in a variety of market conditions. . ”, CEO of Wells.

Centerbridge, which will control Overland, said the new vehicle will also work with private equity firms to finance the acquisition. A person familiar with the matter said it is targeting a loan size of $200 million to $400 million.