iCapital, a New York–based alternative investments platform used by more than 100,000 financial advisors, announced on Friday that it was working with Bain Capital Credit to provide advisors and their clients access to a suite of Bain’s private credit products using iCapital’s technology.
As part of the agreement, iCapital will also create a customized white-label private credit platform for Bain as well as provide research, due diligence, and educational materials to advisors.
“We are delighted to partner with Bain Capital Credit, a recognized leader in private credit investing, with the experience to help investors navigate this dynamic asset class,” Lawrence Calcano, chief executive officer of iCapital, said in a statement. “Advisors and their clients have expressed increasing interest in adding private credit strategies to their portfolio allocations. With this partnership, we ensure proper education, better access to new products, and technologies that facilitate increased exposure to private credit and alternatives more broadly.”
This is not iCapital’s first foray into bespoke platforms. The company has 257 white-label platforms in the market, a number that has more than doubled since 2021. The announcement is also an indicator of the growing popularity of private credit within wealth management.
As the banking industry consolidated, and regulation increased, private equity turned to direct lending.
According to a recent white paper by iCapital using data provided by Preqin, an alternatives data and research firm, direct lending assets under management grew from less than $100 billion in 2007 to close to $900 billion in 2022.
Kunal Shah, head of private asset research and model portfolios at iCapital, told RIA Intel that the industry is still in relative infancy and that he believes it’s one that will continue to grow.
“Even though the asset class has grown substantially, it has still a long way to go to essentially meet the demand,” said Shah. “Think about the buyout industry. There is over $1 trillion of capital they haven’t deployed over the next few years. And assuming a 50-50 ratio of debt to equity, you essentially need over a trillion dollars of financing. Direct lending is a fraction of that right now in terms of dry powder.”
Private credit can provide higher yields and has been popular in the institutional space, said Shah. Private credit allows investments in privately held middle-market companies that are open to only a small number of investors. “As a result, you can charge a higher yield because these companies don’t have access to capital markets, in the same [way] a large public company does,” said Shah.
Other benefits include hedges against inflation due to floating rates, protection provided by its senior loan status, and access to a lot of information due to the due diligence done on the investments.
“There’s a stronger protection element available to private credit investors as well,” said Shah. “Not only from the senior secured part, but they have better collateral packages sometimes, as well as a stronger awareness of board and governance rights.”
However, because of their popularity and the abundance of options, Shah said, advisors really need to educate themselves on the different options and what makes sense for their clients.
“Every product has a different profile attached to it,” said Shah. “Within direct lending, some are focused on small-, mid-, or large- market companies, and you understand the risk and reward that you get from them.”
He said that advisors need to look at what they are getting exposure to, senior versus junior loans, the amount of leverage used and the terms of that leverage, and where the company sits in the maturity stack and evaluate that against the needs of the client.
“If you want to get the higher return in the senior secured market, you’re probably better off at the smaller end of the market because that’s where the spread is higher, but potentially you are taking higher risk as well,” said Shah.
He said that part of iCapital’s offerings is educating advisors and filling the knowledge gap about specific alternative investments, including with their new Bain offerings.
“By partnering with iCapital and leveraging their leading technology platform, we are able to provide more efficient access to our alternative investment strategies to a larger set of investors beyond our core institutional footprint,” Jeffrey Hawkins, deputy managing partner at Bain, said in a statement. “Our initial product on the iCapital platform is focused on providing wealth managers and individual investors access to our longstanding middle-market private credit strategies, which incept back to 1998.”
