Strategic partnerships: Credit’s new frontier

July 15, 2025

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Partnerships between banks and asset managers are reshaping the corporate lending landscape, as Gianpaolo Pellegrini and Stuart Fuller explain.

Corporate lending is undergoing significant change. Tighter regulatory capital requirements have made it more expensive for banks to hold riskier loans on their balance sheets. At the same time, borrower demand for flexible sources of funding and investor appetite for yield have risen, fuelling rapid growth in private debt over the last decade or so.

More recently, a new phenomenon has emerged: partnerships between banks and asset managers. These collaborations allow banks to maintain client relationships and generate fees while reducing their capital burdens. For asset managers, partnerships can often accelerate their access to high-quality deal flow.

The US has long been fertile ground for private credit and Europe is following suit, albeit with more regulatory complexity. Across both markets, the result is a more connected credit ecosystem, where banks and asset managers combine strengths to serve borrower and investor demand. As private credit moves further into the mainstream, these strategic alliances are shaping the next evolution of the asset class.

Shifting ground

The global lending landscape has undergone a profound transformation in recent decades – especially post the Global Financial Crisis. As regulatory pressures on banks have intensified, the cost of holding riskier loans on their balance sheets has become increasingly prohibitive, even though being able to provide these loans is important to the functioning of a healthy economy.

Specifically, higher capital requirements and tighter lending rules have made it less attractive for banks to extend credit directly to sub-investment grade borrowers, prompting a strategic shift in how they participate in the market.

This has pushed banks toward "originate-to-distribute" models, reducing long-term relationship lending with lower-rated borrowers. They are also facing rising pressure from technology-driven lenders and private debt funds that can operate with more speed, flexibility and fewer regulatory constraints.

There has also been a shift from public bond markets to private and syndicated loan markets - reshaping how companies fund themselves and the way risk is distributed across the financial system. On a global basis, the high yield (HY) market has grown just 6% since 2015,¹  while broadly syndicated loans (BSLs) and private debt (PD) have grown 51% and 177% respectively.²  

Although today’s markets are equally sized, the growth in PD and BSLs highlight how sub-investment grade borrowers are increasingly turning to private lenders and loan markets instead of issuing high yield bonds. Appetite for these collaborations is continuing to grow as opportunities for lending proliferates across sectors. Concurrently, investors are seeking diversification, exposures with lower volatility and access to the illiquidity premia associated with private debt.

Collaborative capital markets

However, in the wake of these changing market dynamics, banks are looking at new ways to compete or collaborate.

Some global banks are building their own private debt funds through wealth management platforms, positioning themselves as direct competitors to private lenders.³ Simultaneously, there has been a rise in co-origination and risk-sharing partnerships, allowing banks to continue serving corporate clients while optimising their regulatory capital.

In these structures, banks originate loans and transfer portions off balance sheet using capital relief tools like synthetic securitisations or significant risk transfers (SRTs). This frees up regulatory capital while preserving client relationships and ancillary revenues.

Institutions like JPMorgan⁴ and Citigroup⁵ are among the banks to have announced partnerships with direct lenders or launched their own strategies via their asset management arms. In the US, this model is accelerating as banks shift from being sole lenders to facilitators - acting as syndicators, seed investors or structurers in private credit deals. The dynamic nature of the US financial system supports this evolution, with banks leveraging partnerships to deploy capital efficiently amid rising demand and tighter credit supply.

In Europe, while the financial system remains more bank-centric and fragmented due to varied legal and regulatory regimes, partnerships between banks and asset managers are also gaining traction. Increasingly, banks are engaging in ‘originate-and-share’ or ‘parallel lending’ arrangements in the mid and upper-mid corporate credit market. In parallel lending, both parties co-lend to the same borrower, and on the same terms. This approach allows banks to achieve capital efficiency and regulatory capital relief while offering asset managers access to a much broader pool of high-quality borrowers.

Banks assess risk on a portfolio rather than loan-by-loan basis, so even BB or B-rated deals can sit within an overall investment-grade portfolio. By sharing part of the risks from day one, banks are able to reduce capital costs while preserving ancillary revenue from key mid/upper-mid market corporate clients. For asset managers, these partnerships open significant sourcing opportunities, leveraging banks’ size, borrower relationships and deal flow to deploy capital quickly and at scale in primary loan transactions that are pari-passu with the banks and share the same security.

This form of collaboration is increasingly shaping the growth of the private debt market, blending the structuring and origination expertise of banks with the deep capital pools of private lenders. We believe this marks a positive development in the evolution of private credit, accelerating its mainstream adoption.

A broadly syndicated evolution

Collaboration between banks and asset managers is also taking place in the BSL market. Large private equity sponsor led leverage buyout (LBO) transactions that come to the BSL market still require the ancillary corporate lending, such as revolving credit facilities (RCFs), that maintain efficient balance sheet requirements. While commercial banks like to provide these facilities, they still want to distribute the longer maturity term loans.

 A typical arrangement sees both parties involved in the origination and underwriting of senior-secured loans, primarily rated BB or B. In this arrangement, the asset manager may be granted preferential terms, enhancing the economics of the investment, as the asset manager is providing underwriting support to the borrower, whilst banks, again, benefit from a reduction of risk weighted capital costs by approaching lending on a portfolio basis.

The partnership structure means an asset manager can be brought in early to the origination process - allowing them to gauge client appetite and fine-tune deals. The structure also differs from the SRT market as the risk on the loans are shared at origination, not after the bank has decided to reduce its exposures on balance sheet. These loans can quickly provide a steady and consistent income stream, with structures allowing quarterly distributions to be made to investors.

Compared to other credit structures, this model can benefit from lower volatility, reduced implied financing costs and more conservative leverage levels. Additionally, partnering with banks creates potential yield enhancement through access to origination and underwriting fees - a relatively rare phenomenon in the BSL market but common in private debt - which are typically retained within the structure rather than passed on to investors. As a result, the partnership can offer the potential for compelling returns while maintaining a stable risk profile.

Lending reimagined

The convergence between banks and asset managers marks a pivotal shift in the evolution of corporate lending. As regulatory pressures, capital constraints and market competition reshape traditional banking models, collaborative structures are benefiting both sides.

These partnerships not only allow banks to stay engaged with clients and preserve revenue streams but also open valuable sourcing channels and enhanced return opportunities for investors via asset managers.

As the credit cycle matures and demand for flexible financing grows, we expect these alliances to deepen - extending into broader markets such as syndicated loans and further institutionalising private credit as a vital pillar of today’s capital markets.

References

1. S&P UBS, as of 31st January 2025. S&P UBS Leveraged Loan Index & S&P UBS Western European Leveraged Loan Index.
2. ICE Index Platform, as of 31st January 2025, ICE BofA Non-Financial Developed Markets High Yield Constrained Index, Preqin Investor Outlook H2 2024, as of 31st December 2024.
3. Deloitte Financial Services, as of 13th August 2024. “Banks face a new lending reality”
4. Bloomberg UK, as of 1st October 2024. JP Morgan picks partners to boost its reach in private credit.
5. Private Equity Wire, as of 27th September 2024. Citi and Apollo agree US$25bn private credit tie-up.

 

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co are as of July 2025 and may change without notice.

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