BMO Financial Group has entered a partnership with alternative asset manager Canal Road Group in a deal that will enable the latter to invest up to US$1 billion ($1.37 billion) in direct lending, as the Canadian bank seeks to grow its presence in the booming private credit market.
The deal is the latest in a string of alliances between banks and private credit managers as they navigate tighter regulations and finite pools of capital. Citigroup and Apollo Global Management’s US$25 billion deal last year and Goldman Sachs Group’s deal with Mubadala Investment are examples of these tie-ups.
“We have not disclosed the specifics of our ownership stake or lending commitments,” a BMO spokesperson said. “This arrangement is in support of CRG’s direct-lending activity.”
Banks see private markets as an avenue to grow their fee business without tying up balance sheets, while private credit funds are turning to banks for their experience in lending and their relationships with investors and companies.
BMO is among Canadian banks that are more active in such partnerships. The Toronto-based bank started a private credit partnership with Oak Hill Advisors in 2021 that’s deployed more than US$12 billion.
Cooperation between banks and private credit platforms means banks are moving from being asset holders to acting as originators, according to Arif Bhalwani, CEO of Third Eye Capital.
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“Regulatory pressures and the need for greater capital efficiency are driving banks to focus on their strengths, which are relationship networks and origination capabilities,” he said.
Miami-based Canal Road Group specialises in originating, underwriting and managing portfolios of senior secured corporate debt investments for companies in North America, sourced largely from sponsors, according to a statement.
BMO will hold a non-voting minority stake in Canal Road’s management company, it said.
