E289: The Evolution of Private Credit and What Comes Next
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What is the main topic discussed in this episode?
Thanks for coming on. So Rick, you're the global head of private credit at Pantheon, overseeing one of the largest private credit secondary platforms in the entire world with over $12 billion raised from 250 institutions. When you look back across your chapters in your career, what were the first principles, lessons that shaped how you think about a private credit business inside a global alternatives platform like Pantheon?
We really started with... kind of a really modest beginnings. We had a couple of investors and a first close and a fund. But I think it really starts with kind of formulating what the value proposition is for investors. As leadership, what we were trying to figure out was with our team and with our platform, what's our edge? What's our angle in the marketplace? And what problem are we really solving for clients? So we figured out what the value proposition was for credit secondaries. It was then from there figuring out how do we develop and communicate what the investment process should really look like when you're going after a market opportunity that's very nascent and very new to a lot of different people.
So we spent a lot of time developing the investment process and the underwriting philosophy. And then you bookend that on both ends, one with how do you originate those types of assets,
How did Pantheon develop its private credit secondaries value proposition?
And then at the final part of it, the other bookend is how do you portfolio manage that? So once you have origination, investment process, and philosophy plus portfolio management set up, you then figure out how do you scale? How do you scale to become a trusted liquidity solution provider in that market? That's where team, technology, operations, and everything else come to the forefront. So that allowed us to be an early entrant and innovator in credit secondaries. And it really set the base for us trying to build you know, the type of platform that we have today with our immense size and scale and depth and breadth. But it really starts off with that. How do you figure out what's good for investors?
What problem are you really solving? And then figuring out the different elements along the way to make it make it achievable.
And why does the market need a secondaries fund within credit? It's a bit counterintuitive.
Absolutely. So I think what we realized a long time ago was that the credit markets on a primary basis had gotten so large, call it around $1.7, $1.8 trillion in size, with so many different types of investors, whether they're institutional investors, insurance and pension to high net worth to family offices and the like, plus the immense number of managers that had been created over the last decade. When you have a lot of managers with a lot of vehicles, a lot of investors and a lot of capital, you fundamentally need the ability to tactically reallocate and rebalance those exposures if you're a holder of those exposures. And we as Pantheon saw this in other asset classes like private equity 35 years ago and infrastructure, you know, 15 to 20 years ago.
Each of these private markets asset classes have varying degrees of liquidity and duration. And we realized that private credit didn't have that. And the real big bang moment was when we, again, back in 2018, created this fund focused on Europe initially for credit secondaries with the right cost of capital and the right go to market. That really created the impetus for this market and where we are today. So we looked at client innovation initiatives. in that regard, and then figured out that's how we need to address the market needs for liquidity.
Said another way, a secondary solves a problem, which solves liquidity for the investor, and they have entire portfolio. You could have a venture secondary, you could have a private equity secondary. Why can't you have a credit secondary? And your answer is, yes, we can do that. And that's what you created. Absolutely. And it's a bit different in that credit secondaries and private equity secondaries, you're buying out some kind of discount and then it might be undervalued or overvalued depending on the intrinsic value of the equity.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–1:19
2
How did Pantheon develop its private credit secondaries value proposition?
1:19–11:36
3
Why did private credit secondaries emerge and what liquidity problem do they solve?
11:36–22:05
4
What are the main value drivers and differences of credit secondaries versus private equity secondaries?
22:05–33:20
5
How does Pantheon diversify and size its underlying loan exposure across regions and strategies?
33:20–41:12
Speakers
2 identifiedMore from How I Invest with David Weisburd
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