In hedge funds’ backyard, private credit is the toast of the town

• At the annual Greenwich Economic Forum, private credit is the fan favorite.
• In a town known for big macro bets and groundbreaking quant strategies, regional bank-like loans are hot.
• “It’s not a bubble,” Jan Van Eck, CEO of the eponymous asset manager said.

Investors in Greenwich, Connecticut, home to hedge-fund titans like Ray Dalio and Cliff Asness, fantasize about stealing sleepy businesses like auto loans from regional banks.

Little has been said about venture capital or cryptocurrencies at this year’s Greenwich Economic Forum, an annual conference attended by investors, politicians, and media figures.

Instead, Ken Kencel, CEO of Churchill Asset Management, a private credit division of asset management behemoth Nuveen, presided. As docked yachts bobbed in the water 100 yards away, the audience at the four-star Delamar Greenwich Harbor hotel hung on every word of Kencel’s panel Tuesday morning.

“Opportunities are there in bank-lite areas,” he told me. He predicted that private credit shops and direct lenders would fill gaps in the asset-based lending space, as well as home and auto loans, over the next decade. This transition was exacerbated by the regional banking crisis that occurred this spring.

“I’ve seen two regional banks over the last couple of days trying to sell their asset-based lending businesses, not because they are bad businesses, but because they don’t fit in a banking framework anymore,” he went on to say.

Private credit, also known as alternative credit or direct lending, is a finance subsect that has grown rapidly in response to rising interest rates and distressed banks. Asset managers lending money to large and small businesses is nothing new. Nonetheless, those leading the charge believe market share is available due to banks’ continued withdrawal from various loan markets following the financial crisis — and their support of the firms taking their business.

“Banks have become a lender to a lender,” said Gregory Robbins, vice chair of Golub Capital, which lends to private equity-owned businesses.

“We love banks.”

But Greenwich, where residents joke that the speed limit is “2-and-20” in honor of the town’s hedge-fund population, isn’t a banking town. The popularity of private credit among this group reflects the convergence of several trends.

Higher interest rates are forcing institutions — the pension funds and endowments that are the largest investors in hedge funds — to rethink their portfolios. The industry’s shift away from big-name single-manager funds and toward more stable multi-manager funds is undermining the cult of personality ethos that many billionaires built their brands on. And capital is required to fill the gaps left by the banks.

“We are probably still in the early innings,” Jan Van Eck, CEO of the eponymous asset manager, said.

“It’s not a bubble,” he continued.

Billionaire Ray Dalio, a member of the old guard, did speak Tuesday, regaling attendees for half an hour about US-China relations and currency expectations.

While the Bridgewater founder held the room’s attention, it was at a direct lending panel a few hours later that an ambitious audience member pitched himself to the private credit executives onstage.