Arrow Global chief eyes opportunities in specialty asset classes
Arrow Global’s founder sees opportunities for private credit within specialty asset classes such as agricultural finance and bridge lending, as banks narrow their focus to mass-market products.
Zach Lewy, group chief executive and chief investment officer of the alternative asset manager, said that private credit can play “a vital role” in providing specialist expertise in areas unfulfilled by banks.
“Banks are now focusing on core, mass-market products such as mortgages and payment systems, leading to an increase in specialty asset classes entering the private credit sector,” he told Alternative Credit Investor.
“Many of these asset classes, such as bridge lending, agricultural finance and mixed-use mortgages are attractive. Private credit plays a vital role in the economy by providing this specialist expertise.
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“Agricultural lending needs to be done face-to-face, while construction finance aligns with the building process, and bridge lending requires quick action. These are crucial sectors of the economy that do not easily fit into a typical bank’s lending profile.”
Placing these sectors in a fund format and providing these types of asset types to investors is beneficial to borrowers, fund managers, investors and regulators alike, Lewy explained.
“Private credit not only provides access to capital for borrowers but also connects fund managers with borrowers who need capital and investors who are looking for that return profile,” he said.
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“Historically, regulators intended for banks to act like utilities with government guarantees and avoid specialist risks, preferring these risks be managed by investment firms equipped with the appropriate culture and controls.”
Future trends
Looking ahead, Lewy expects investors to diversify more broadly across different types of private credit, away from the typical direct lending strategies that have come to define the asset class.
“The first wave of private credit focused heavily on corporate lending, including sponsored credit and LBO financing,” he said. “Now, we’re seeing a more diversified array of strategies, such as NAV financing and real estate credit.
“There is now a greater balance among different lending categories. Some investors, finding their corporate books full, are expanding into asset-backed lending, NAV financing, or risk transfers.”
Lewy also noted the “notable and recurring convergence between credit managers and insurers currently”, which he expects to continue.
Insurers have increasingly been partnering with private credit firms as they have sizeable amounts of money on their balance sheet that they need to invest.
Brookfield Asset Management last month revealed that it plans to expand its insurer client base via its credit arm.
And KKR’s first-quarter results showed that new capital raised in its alternative credit portfolio was partly driven by inflows at Global Atlantic, a life insurer it acquired.
Arrow was founded in 2005 and invests in a range of alternative asset classes including opportunistic credit, lending and real estate across Europe. It has invested around €10bn (£8.6bn) since inception and services around €80bn of third-party assets under management.
