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Another Firm Jumps Into Private Credit

Capital Dynamics has hired former Credit Suisse executives to create a direct-lending business and plans to raise a fund targeting the middle market.

  • Alicia McElhaney

Capital Dynamics has started a direct-lending business targeting the U.S., Europe and Asia, joining an influx of asset managers originating loans to smaller companies.

The firm has hired two former Credit Suisse Group executives, Jens Ernberg and Thomas Hall, to co-lead a private-credit unit targeting middle-market companies, according to a statement expected to be released Tuesday by Capital Dynamics. The new debt division aims to raise around $500 million for its first fund this year, though no specific targets have been set, according to a spokesperson for the firm.

“Our limited partners are interested in products like these,” Martin Hahn, chief executive officer of Capital Dynamics, said in a phone interview. “They need yield-generating assets.”

While large private-equity firms such as Blackstone Group and KKR & Co. have for years been building out their credit units, smaller asset managers are now entering or stepping up direct lending. The amount of capital raised by private credit funds has soared since the 2008 financial crisis as these firms increasingly provide midmarket loans traditionally made by banks.

“The credit market is relatively crowded,” Ernberg said by phone. “The lower middle market offers less competitive tension.”

Ernberg and Hall, who joined Capital Dynamics' New York office in July, co-founded and ran Credit Suisse’s direct-lending business. While working for the bank, they originated $2 billion in private debt across 50 midmarket transactions since 2011.

Private-equity firms raised $21.1 billion for credit funds during the first quarter, a 63 percent increase from the same period last year that was driven by a 200 percent jump in direct-lending pools, according to an April report from EY. The firm estimated at the time that credit funds had about $200 billion to invest.

In June, Steadfast Capital Markets Group and Alcentra NY, an asset manager owned by Bank of New York Mellon Corp. that focuses on below-investment grade credit, jointly announced a new private fund that “seeks to capitalize on the growing opportunity to provide direct lending to middle-market companies in the United States and Western Europe.”

In April, Griffin Capital Co. said it started a closed-end credit fund sub-advised by Bain Capital that provides individual investors access to debt market opportunities typically reserved for large institutional investors. The fund may in invest in direct midmarket loans in addition to other areas of the credit market.

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“Many of our own LPs want to access the middle market and types of opportunities there,” Hahn said, referring to Capital Dynamics' limited partners, or investors that it works with in others areas of its business, including private equity and clean energy infrastructure. The firm has $28 billion of assets under management or advisement globally.

While its new direct-lending pool will mainly focus on companies based in the U.S., the firm will also provide loans in some markets in Europe, Korea and Japan, according to Hahn. The businesses it targets will have a least $7.5 million of Ebitda, or earnings before interest, taxes, depreciation and amortization, and an enterprise value of at least $50 million.