For private credit’s top talent, US$1 million a year is not enough

ANTOINE Gosselin-Mercury may not have expected to hit the corporate heights quite so quickly when he moved to Barings in 2021. But over a single mad March weekend this year, the mid-level staffer found himself one of the most senior people left on his team at its ritzy London office.

For any financier wanting to make a mark in the booming US$1.7 trillion private credit market, Barings was a good place to be. The firm’s Global Private Finance (GPF) division has long been part of the elite, especially in Europe. It boasts a pedigree in company loans going back to 1992, a lofty position in deal rankings and a parent company that manages half a trillion US dollars of assets.

For many of the older hands at “GPF”, however, that lustre was fading badly. What they wanted too was the chance to make more money. Possibly lots more.

In a March move that stunned the relatively genteel world of private credit, 22 Barings employees quit en masse and jumped ship for an obscure startup called Corinthia Global Management, run by Australian real-estate entrepreneur Paul Weightman – a combative figure known to some as “Weighty”. Gosselin-Mercury, who’d been promoted to director just before the drama, stuck around. But a business that was the envy of its peers has been left in disarray.

“I have never seen a play like this in my 18 years hiring into credit markets,” said Edward James, founding director of finance headhunter RCQ Associates.

According to Weightman and others with knowledge of the matter, the GPF defectors have been seduced in part by the promise of equity in his firm, something that was not on the menu at Barings. While some staffers were making more than US$1 million a year, that’s a fraction of the tens of millions of US dollars made by senior peers who have cashed in stakes at smaller boutique rivals such as Arcmont Asset Management.

And it’s nowhere near the billions made from equity stakes by a few others at the very top of the industry. Ambitious financiers used to have plenty of options for seeking life-altering fortunes, from the bankers who made their riches when Goldman Sachs joined the stock market to the private equity tycoons who piled up dizzying sums in the buyout boom. Today, the private credit gold rush is one of the few available roads to similar wealth.

And yet by throwing in their lot with a private credit arriviste, the Barings defectors are risking the relationships with investors and borrowers that they have built painstakingly over decades. This lucrative industry – which is jousting with Wall Street to be the go-to lender on company buyouts – has sold itself on the virtues of personal trust, stability and dealing discreetly with any problems behind closed doors, away from the rude glare of public markets. Weightman’s noisy crashing of the party upends much of that.

Winning back trust will be tough. Many investors are furious, both with Barings for letting this happen and with the leavers for not letting on about their exodus. Some defectors were taking investor meetings days before they quit.

When GPF’s “limited partners” – the pension schemes, sovereign wealth funds and others who back its investments – dialled into a prescheduled call with Barings leaders after the Mar 8 bombshell, they got less than 10 minutes and couldn’t ask questions, according to someone present. This call came alongside many separate one-on-one investor chats to explain the situation, another source with knowledge of the discussions said.

“No one’s coming out of this looking good,” said Vasileios Kocheilas, a seasoned private credit LP, adding that investors will have been in “limbo, asking about who’s looking after my assets”.

Bloomberg spoke to more than a dozen people for this story, including Weightman, employees of Barings and investors, most of whom wanted to stay anonymous discussing sensitive commercial matters. In an e-mailed statement, a Barings spokesperson said GPF remains “well-positioned to capitalise” on the private credit boom and to deliver “long-term value” to clients.

The message from several LPs is clear, though: Both sides have suffered real harm to their reputations. Raising new money will not be easy.

Bad blood

Tensions at GPF had been building for a while, sources familiar with the matter say. Many in the team did not feel adequately backed by Barings and its owner, US insurer MassMutual, with some complaining of not getting full support for operational matters and recruitment. While about 80 per cent of MassMutual’s investments in middle-market direct lending were done via Barings, it was also investing in outside private credit funds – another sore point.

Documents seen by Bloomberg show management fees and “carry”, the share of profit fund managers got to keep, were meaningfully lower than at rivals Ares Management and Tikehau Capital. Some LPs say the leavers grew frustrated about revenue-sharing arrangements with Barings’ head honchos.

Almost three months after GPF’s top brass walked, the bad blood persists. Barings has come out fighting, appointing leaders to the shell-shocked team and launching a lawsuit against Corinthia and two ex-employees accusing them of one of asset management’s biggest corporate raids in years. It alleges the pair misused confidential information in trying to recruit Barings staff.

Corinthia has asked a judge to dismiss the case, arguing that Barings has not provided facts to show it suffered the harms it claims. The two former executives have made similar filings.

Regardless of the legal outcome, the episode has shaken a private credit industry that leans heavily on the contact books of its star managers. If it can win over investors, Corinthia may be a model for other upstarts looking to grab teams – a disruptive gambit more common to investment banks – and for any teams who’d love to snag a more lavish share of this market’s boom times. Fail, and wannabe defectors may decide it’s not worth the aggravation.

“Everyone wants to build the next hot thing in private credit,” said the investor Kocheilas. “Building a team from scratch isn’t easy, people have been at places a long time – so clearly what’s happening now is, if you haven’t got in early, you think about nicking a team.”

On the brief investor call after the exits, Barings’ head of private assets David Mihalick acknowledged the “disruption” to LPs but pushed back against the idea that MassMutual had not been supportive to GPF, a key earner. The insurer has a “long-term view of the asset class, and has communicated and confirmed their intention to continue regularly allocating”, he said.

GPF chairman Eric Lloyd told attendees that “we are very much open for business” and “expect to be very active.” Mihalick added, too, that only one in 10 of the unit’s US group had quit, while not providing details on what percentage had joined the exodus in Europe.

That struck a different tone to the lawsuit, which stated that globally the defectors “included nearly all of the senior members” of the team. Adam Wheeler and Ian Fowler, the group’s coheads, were front and centre. And Europe, which bore the brunt of the exits, is a big deal for GPF. It was ranked at one point in 2022 as the leading lender to midmarket companies there.

Barings paused investing through certain GPF funds as it started the hunt for replacement managers, and some fundraising stalled, according to sources with knowledge of the situation. Junior staff are sending resumes around, the same sources said. Rivals are circling to see if they can spirit away any of the prized loans run by GPF, which manages about US$33 billion of assets.

Corinthia will be trying to build the business as well, as long as it can restore investor faith. Weightman’s firm has backing from Japanese bank Nomura Holdings, which is eager to expand in private markets. At least one large Gulf investor has expressed support, according to sources familiar. One of the team’s backers at GPF was Abu Dhabi heavyweight Mubadala Investment. Several other LPs say they’d think twice before handing cash to Corinthia.

Weighty matters

The involvement of Nomura’s investment-management division came as a surprise to some of the Japanese bank’s own staff, sources with knowledge of the matter say. Weightman, 62, is a huge fan of Japan. He owns a chalet there and has taught himself the language.

The Queenslander, who used to drive a Rolls-Royce around Brisbane with the license plate W8E, will certainly add a splash of colour to private markets.

His background is very different to the usual crowd of tight-lipped ex-investment bankers who populate private credit’s upper reaches. He made his name in the rowdy world of real estate investing, cofounding Cromwell Property Group – where the wife of one of the Barings defectors worked for a while – and turning it from a local Australian fund into a global, publicly listed company. A regular in the business press, he was not shy about getting his name out there nor uncomfortable getting into spats.

An attempt to buy rival Investa Office Fund spiralled into a full-blown slanging match. He was ousted from Cromwell after another public scrap, this time with Singapore-based investor ARA. He then set up a new firm, Stara, which last year was marketing an A$75 million (S$67.4 million) pubs-and-grub fund from the same offices where he launched Corinthia. He plumped for the Corinthia moniker after meeting with a Barings defector at the smart London hotel of that name.

The Barings lawsuit, which laid out a timeline of the weekend when the GPF team quit, shows Weightman has lost none of his aggressive edge. At 5.39 pm Eastern time on Friday, Mar 8, he e-mailed MassMutual’s boss Roger Crandall referencing Wheeler’s resignation and asking to speak the next day.

On the Saturday morning, he e-mailed Crandall again, saying the exit of “the senior managers will create a range of issues for the Barings Private Credit business”, according to the lawsuit, and attached a term sheet offering to buy the entire GPF business with a proposed deadline to announce the deal three days later. The bid was rejected.

Weightman said that he tried to structure an arrangement that would have maintained continuity for Barings’ investors.

The GPF crew’s allure for Weightman, and the blow to Barings from losing them, is obvious. Private credit has been growing at breakneck speed and Barings has ridden the wave on both sides of the Atlantic. According to investor documents seen by Bloomberg, it has invested US$27.6 billion in North America and 17.8 billion euros (S$26 billion) in Europe over the past decade or so, as at June 2023.

And the team’s record is impressive. With yearly loss rates of less than 0.05 per cent, the most recent senior loan funds were making net returns ranging from 10.4 to 13.4 per cent, depending on the region and leverage.

Off key

As banks and large asset managers look to break into this money-spinning market, other private credit firms are paying very close attention to the Barings episode, hastily dusting off employment contracts and “key person” protections to guard against a similar fate. But vulnerabilities in GPF staff terms made departures easier there, sources with knowledge of the matter say. Contracts were structured with short non-compete clauses, they add.

The US team was employed at will, Weightman said, meaning they could be terminated or give notice immediately. Europeans had to give about three months notice. “Other firms in the top tier wrap their people up a lot better,” he says. The US defectors have already begun working at Corinthia. UK colleagues start next month at its new office on London’s Cavendish Square.

Giving the new hires equity – something investors like because it aligns fund managers’ incentives with the firm’s – was one of the clinchers for Corinthia. “When you are working in a subsidiary of an insurance company that doesn’t give anybody equity, doesn’t let them invest into the underlying structure, it’s pretty hard to demonstrate that level of alignment,” Weightman added.

He has not always been so generous. When Cromwell bought property fund Valad Europe in 2015, Weightman amended contract terms so the team got paid less carry, sources with knowledge of the situation say. Many staff left.

As Barings carries on the difficult job of replenishing its private credit A-team, its legal efforts continue alongside. “People often say it’s virtually impossible to conduct a large team move without breaching a contract somewhere,” said David Fisher, a partner at law firm CM Murray who specialises in moves like this. “The challenge for Barings is proving it.”

Arguably the more important task will be cauterising GPF’s wounds and clinging onto its cherished spot in private credit’s upper echelons. It has been active since the departures, deploying some US$1.2 billion across 29 deals. But raising new funds will be the litmus test. “Clearly the move has been damaging for Barings,” James, the headhunter, concludes. “Not just in terms of personnel and knowledge loss, but also how public this has become.” BLOOMBERG