Faes & Co: Lending to mid-caps becoming crowded
Mainstream private credit strategies like lending to mid-cap companies are becoming “overly competitive”, pushing down yields, according to the chief executive of U.S. bridging lender Faes & Co.
Christian Faes, who has been an international player in alternative investments for many years with a big focus on private credit, said there are signs the mid-cap part of the market is maturing.
“It does feel like some of the more mainstream strategies, particularly lending to mid-cap businesses in the $20m (£15m) to $100m EBITDA range, are becoming increasingly crowded,” he said.
“This segment has seen an influx of capital and lenders, which is leading to compressed yields and looser covenants – both signs of a maturing, and perhaps overly competitive, corner of the market.”
Read more: Faes & Co gets OakNorth funding for US bridge finance business
Faes said he thinks investors will start to shift their focus toward opportunities that are perceived as being more niche segments, such as real estate bridging finance – “where inefficiencies still exist and where strong returns can be generated through specialist origination and underwriting”.
In these more complex or fragmented sectors, the barrier to entry is higher, but so is the opportunity to earn real alpha, Faes said.
“I think this is where a lot of the innovation and capital will flow over the next 12–24 months,” he added.
“The bottom line is that while mainstream private credit strategies may be pushing toward commoditisation, specialized areas like real estate bridging finance, litigation finance, or other asset-based lending for niche industries could provide that next wave of returns – and will likely keep the private credit growth story on track.”
Read more: Ares reaffirms commitment to core mid-market
According to Preqin, private credit AUM is expected to reach over $2.8tn by 2028, up from around $1.6tn in 2023, underscoring the trajectory of this growth story.
Faes said he also expected private credit to see continued growth in 2025, as the general macro conditions for the asset class remain positive.
“Higher interest rates have improved yields, and banks continue to retreat or are simply not set up to compete effectively in many markets where there is still strong demand for growth capital,” he pointed out.
The Alternative Credit Council’s ‘Financing the Economy’ report has highlighted a steady rise in private credit deployment.
It makes the link directly to the retreat of traditional lenders, and institutional investors’ growing desire for uncorrelated, higher-yielding returns.
“With the recent market volatility in public equities, you can understand why private alternatives will continue to be an attractive asset class for this year – and private credit will be a large part of this,” said Faes.
Read more: Atland creates new real estate private debt business
