(Bloomberg) -- Banks selling loans to cope with US oversight proposals are creating a opportunity in the private credit market that can generate outsized returns, according to Mark Jenkins, head of global credit at Carlyle Group Inc.
The international overhaul of regulations known as the Basel III endgame may trigger big increases in bank capital requirements. The new regime isn't final, but some lenders are getting ahead of the game by selling investment-grade loans to reduce potential capital charges.
Carlyle is purchasing these newly available loans, and repackaging them into securities that can offer investors attractive returns, Jenkins said.
"Banks, in the US in particular, are managing down their risk-weighed assets, and that is creating a deluge of opportunities for us on what I could call the IG or investment-grade private credit side," Jenkins said in an interview with Bloomberg's Credit Edge podcast. "There's some tremendous returns being made on the residual pieces. I'm talking equity-type returns that are in some cases north of 20%."
Washington-based Carlyle has joined the finance world's growing shift from public to private markets, including growth in private credit markets that top $1.7 trillion. The firm is also making a push into private asset-backed lending securitization. Credit Strategic Solutions, the firm's private fixed-income and asset-backed investments arm, invested $1.6 billion in 2023. This year, the group bought $415 million of student loans from Truist Bank.
The debt Carlyle is buying from bank balance sheets is as varied as consumer healthcare debt, manufactured housing loans, and student loans. The firm targets "anything where there's a pool of homogeneous credit that can basically securitize," Jenkins said.
The flood of loans available for purchase far outstrips anything he's seen in his decades of experience.
"It is really the first time in 33 years of my history that I've actually seen an active flow of deals coming out of banks in a very steady manner as opposed to very episodic," he said.
(Updates with detail about private credit market in fifth paragraph)
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