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

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Wells Fargo has partnered with asset manager Centerbridge to launch a $5bn private credit fund that will lend to midsized US companies, as banks race to find a toehold in the rapidly growing private credit industry.

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

The new fund is targeting $2.5bn of equity commitments, with roughly $2bn already contributed by Abu Dhabi’s sovereign wealth fund and the British Columbia pension fund.

Wells Fargo and other banks are trying to work out their role in the $1.5tn private debt market, which has been dominated by alternative asset managers including Apollo, Ares and Blackstone.

These alternative money managers are now lending to larger businesses and therefore encroaching on banks’ dominance of the market for corporate loans.

However, traditional lenders have struggled to determine how hard to push into private credit because the loans can be risky and illiquid and most banks do not want to hold the debt on their own balance sheets.

Meanwhile, volatile public markets have pushed a growing number of companies away from traditional bond and loan offerings to private credit. AT&T, PayPal and Air France-KLM are among the companies that have in recent months turned to the growing private credit industry for financing.

The announcement from Wells comes days after Société Générale announced it would partner with asset manager Brookfield on a private credit fund. Barclays is negotiating with asset manager AGL on a fund that would give the British bank a way to break into the asset class, according to two people briefed on the matter.

Other banks are using their own balance sheet, a strategy that most lenders have been wary of because they often have to hold large sums of capital given the riskiness of the loans. JPMorgan Chase has set aside at least $10bn of its own capital to invest in the space, according to people briefed on the matter.

The Wells and Centerbridge fund will be set up as a business development company and branded Overland Advisors. It will rely on Wells to help source companies to lend to.

“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,” said Charlie Scharf, chief executive of Wells.

Centerbridge, which will control Overland, said that the new vehicle would also work with private equity firms to help finance buyouts. It will target loans in the region of $200mn to $400mn, a person with knowledge of the matter said.