Private & Structured Credit in the Middle Market: Evolving Strategies & Risk-Reward Trade-Offs

In March 2020, Reverence Capital Partners—a private equity firm with a strong financial services investing track record—announced its entry into structured credit markets via a new credit fund, seeking $500-$600 million in commitments and hiring Jeff Verschleiser, a former senior trader at Goldman Sachs, as the Chief Investment Officer of this credit pool. [1] Their strategy is narrowly defined: the fund will engage in asset-based lending for new credits or purchased assets, potentially including real estate loans secured by property; but it explicitly will not invest equity in the companies to which it lends. [1]

This move represents a diversification away from Reverence’s core buyout / control-oriented investments in middle-market financial services, seen in Funds I and II. Fund I raised $500 million in capital commitments and attracted additional capital through partner co-investments, bringing its effective size to $2.5 billion; it is delivering an IRR of approximately 45%. [1] Fund II closed at its hard cap of $1.2 billion—well above its $750 million target—and is about 40% invested as of the March 2020 report. [1][3]

Strategically, the new credit fund is well-timed: the broader private credit market in the U.S. has been expanding rapidly, supported by yield chasing, regulatory constraints on banks, and rising issuance in structures such as middle-market collateralized loan obligations (CLOs). [4][5][6] Particularly, issuance for middle-market CLOs rose sharply in recent years; structured credit firms are innovating and expanding into CLOs tied to private credit. [4][6]

However, risks are nontrivial. Spreads appear to be tightening, borrower‐friendly terms are becoming more common, and credit risk is elevated in stressed sectors. Redemption of leveraged loans and covenant looseness are observed. [6][5] For a credit fund that is asset-based and expects collateral quality and recovery value to matter a great deal, careful underwriting and structure (e.g. seniority, LTV, covenants) will be essential.

For investors (limited partners), this is an opportunity to gain exposure to structured credit via a firm with strong track record in financial services. But they should scrutinize the fund’s ability to flex through tightening credit conditions, plus the transparency of collateral and asset‐selection criteria. For competitors, Reverence’s move suggests further intrusion of PE firms into private credit domains—adding competitive pressure for lenders in the middle market and structured finance space.

Open questions include: What precise collateral types will the fund focus on; how the fund will source or purchase existing credit assets; what pricing and covenant standards will be; and how crowded the structured credit space is likely to become as more PE firms enter it.