Brookfield, Société Générale to launch new private debt fund

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Brookfield Asset Management Ltd. BAM-T and French bank Société Générale S.A. are launching a new private debt fund that aims to invest up to €10-billion ($14.6-billion) over the next four years, capitalizing on growing interest in high-grade private loans at a moment when traditional lenders are pulling back.

The fund will start with €2.5-billion ($3.65-billion) and focus on making private loans to investment-grade companies in industries such power, renewable energy, data and transportation, as well as providing fund financing.

The partnership between the Canadian-based manager of global assets and the prominent Paris-based bank is only the latest move into a fast-growing, US$1.5-trillion market for private credit. By focusing on high-quality debt, they are looking to attract interest from selective investors such as insurance companies that are increasingly allocating part of their assets to private loans.

Brookfield plans to invest its own capital as well as funds from institutional clients in the new private debt fund, and sees “a tremendous opportunity within the investment grade market to support critical industries that underpin the global economy,” said chief executive officer Bruce Flatt, in a statement.

High interest rates have created headwinds for private equity and commercial real estate, and prompted some banks to pull back on lending. But private credit is seen as an area of opportunity, as most loans carry floating interest rates and become more lucrative as rates rise. Last year, private debt funds raised nearly US$226-billion, up from US$218-billion in 2021, in spite of turbulent economic conditions, according to data from Preqin.

Brookfield and Société Générale have both operated in private debt markets for years, including as collaborators and competitors. While the French bank has typically pursued very low-risk, investment-grade lending to private clients, Brookfield has operated more in the part of the market that generates higher returns.

Brookfield has been building its credit business, which has US$197-billion of assets under management and US$152-billion in capital that earns fees, primarily through its majority stake in Oaktree Capital Group LLC. The bedrock of the business has been providing senior credit and debt in real estate and infrastructure, originating about US$50-billion annually to sectors such as offices, transport and logistics. But Brookfield has expanded its offerings in recent years, and also has private debt funds focused on renewable power, private equity and corporate lending.

The market for investment-grade loans, though less lucrative, is much larger, and offers a chance for Brookfield and Société Générale to increase the size of their new fund over time by bringing in investors looking for exposure to highly rated debt.

As many banks are under pressure to preserve capital in the face of tougher economic conditions and tighter regulation, they are increasingly joining with asset managers to originate private loans together, combining their distribution networks and client relationships. British bank Barclays Plc and U.S.-based lender AGL Credit Management LP are also close to striking a partnership to invest in private credit, according to a report from Bloomberg News.

Société Générale CEO Slawomir Krupa said in a statement that the new fund aims to meet “the growing demand for private debt and will have a positive impact on the real economy while simultaneously scaling up Société Générale’s origination and distribution capabilities.”

For Brookfield, the new partnership with Société Générale is “incrementally positive” because it shows the breadth of the asset manager’s relationships and its ability to launch new funds that generate profits from fees, said RBC Dominion Securities Inc. analyst Geoffrey Kwan, in a note to clients.