Bain Capital Credit, a Boston-based credit specialist with AUM of approximately $43 billion, has launched a business development company. The launch, Bain Capital Private Credit, is a perpetual, non-traded BDC.
BCPC expects to invest at least 80 percent of its total assets (net assets plus borrowings for investment purposes) in private credit investments, offering income-producing investments tied to a mid-market strategy.
Michael Ewald, a partner at Bain Capital Credit and global head of the private credit group, spoke about the launch – and the corporate history behind it – in an interview last week. “Bain Capital Credit started in 1998 with a two-pronged strategy, investing in broadly syndicated loans and middle-market mezzanine debt,” Ewald said. “While still a large investor in broadly syndicated loans, our middle-market lending strategy has evolved to include senior debt lending in a number of different fund structures, including our first BDC, which we launched in 2016.”
The first BDC to come out of this evolution was Bain Capital Specialty Finance. It went public in 2018 and is fully invested in a global senior direct lending strategy.
That same year, 2018, saw a Real Assets Adviser report that heralded the “much-needed turning point” then underway in the BDC industry. Real Assets Advisor, a title under the umbrella of Institutional Real Estate Inc, noted the emergence of a higher calibre of managers and a broadening of available strategies amongst BDCs that were giving retail investors “greater options within the non-traded space.”
Since then, retail interest has continued to grow – through a pandemic, the economic dislocations that resulted, the uncertainties of a new US administration and a Fed crackdown on inflation.
“Over recent years and even recent months, there has been more and more interest among retail investors in this asset class, because it reliably generates cash and it has a low correlation to other investments,” Ewald said. Bain has launched the new BDC in reaction to this demand.
Important differences distinguish the older (BCSF) and the newer (BCPC) structures. BCPC is perpetual life and non-traded. This involves less liquidity for investors, but it also allows for lower management fees.
On the issue of liquidity, too, the statement says that Bain “does intend to implement a share repurchase program,” but cautions that “only a limited number of shares will be eligible for repurchase and repurchases will be subject to… significant restrictions.” The issue of illiquidity and redemption limits became a pressing one for both KKR and Blackstone last year, resulting in what Blackstone president Jon Gray called “a number of months of really negative press”.
Another difference between the two Bain BDCs is in their portfolios. BCSF’s investment strategy is solely focused on senior debt. But Ewald said, “BCPC will include roughly a 20-30 percent allocation to higher-yield junior debt.”
There is a lot of competition in the space, even looking specifically to the non-traded funds. How will BCPC distinguish itself from the others in the field? “A lot of the other BDCs in the market look to the large-cap investments,” Ewald said. “BCPC will make direct loans to middle-market companies, mirroring Bain Credit’s 25 years of experience in that space.”
Bain’s private credit group manages $10 billion in assets and has invested over $20 billion across more than 450 portfolio companies since inception.