Taking on the estimated $9 trillion private credit market, Percent recently launched an all-in-one platform to help anyone underwrite in the private credit space.
In addition to the Percent Underwriter platform, Thursday, the firm availed the acquisition of portfolio and risk management tech from MidCap Financial, which the firm said will help automate analyzing loans and add transparency to the platform.
Nelson Chu, Founder & CEO of Percent, said that before the underwriter platform, the Percent team would have to process and underwrite every transaction in-house.
“We were the only underwriter on the platform for about two and a half years,” Chu said. “And if you think about it, there is a physical constraint to Prath and capital markets team and how much they can do on a regular basis in terms of volume, right? But as an infrastructure tool, you have the ability to open up and almost outsource underwriting to knowledgeable people, whether they be a credit fund, an investment bank.”
Private credit has room to grow
Chu said that the private credit market is unlike the public one in scope and scale. The public market has “$46 trillion of transparency, governance, and standardization,” Chu said.
“None of that really is in the private debt markets today, even though it is a $9 trillion market: lending being a big part of that,” Chu said. “So you think about it, every action that we’ve taken thus far in the company’s life has been built around [the question] how do we get market standardization?”
President Prath Reddy leads the underwriting team and said the new platform eliminates old incentives.
Paid on commission, underwriters tend to focus on the largest deals they can get their hands on if the old saying ‘The $1 billion deal takes just as much time and effort as the $1 million deal’ has any merit.
Percent is trying to disrupt that old motto, allowing anyone to get into smaller private underwriting deals at scale.
“When I worked at UBS, we would only really focus on larger deals. We knew that the economics made sense, and that justifies the time the expense headcount and brain damage associated with the market,” Reddy said.
“But the underwriting platform that we launched is basically bringing the tools that we’ve been able to develop over the last few years into the hands of any bank or underwriter that wants to go down market and do it at scale.”
Private credit SaaS when you need it
The Platform launch and tech acquisition came just months behind the unveiling of Percent Sync and Percent Branded Notes, two other popular SaaS products that standardize the private credit market.
“So on the Sync side, it’s designed to help the borrower and the companies who need that capital, and have an interface for them to be able to do all the things that they need to do on a regular basis as part of raising capital,” Chu said.
Sync lets borrowers in private credit see anonymized, easy-to-read data on how the credit market is performing, what they can expect if they get involved, and guidelines for handling compliance and investors.
Blended Notes, as Reddy explained, is a type of ETF product for Private Credit Lending, a portfolio of private credit deals that investors can use to gain access to the asset class.
“We wanted to create a product that was a single entry point for investors to be able to get instant exposure to all the underlying deals on a platform and not have to worry about the syndication process,” Reddy said. “So the blended note is essentially our answer to that: an investor can purchase the note, and it’s being managed by Percent advisors our investment advisors.”
Like public markets have standards for ETFs, Reddy said there’s a specific set of eligibility criteria around what the proceeds can and cannot join the pool.
A long roadmap to get here
After founding the firm in 2019, Chu said that after a tumultuous pandemic that gave the young startup a “crash course in what was broken in the market,” Percent has enabled $700 million in transactions and over 275 offerings with no sign of stopping.
“It was all smooth sailing until the March of 2020,” Chu said.
But the tough times brought a thorough understanding of the private credit market. Reddy said that when they joined the market in 2019, the other players were opaque about their practices, and since then, Percent has worked hard to introduce transparency.
“You can’t just show up and do underwriting overnight. What goes into that process and that sequence of events? Learning how it works takes a lot of experience doing the deals themselves. We’ve now done over 275 different deals in the two and a half years we’ve been around,” Chu said. “That is highly unusual. But the frequency was intentional because we want to make sure we learn something out of every single deal, and we use all that to drive product development for the underwriting product.”
With a background in traditional finance at Merrill Lynch and BlackRock, Chu switched into successfully founding and launching a startup before founding Percent and has since combined his skills with Reddy’s investment banking background in bond and debt capital markets from his time at UBS.
“At the end of the day. What we’re doing is bringing public market efficiencies to private debt markets,” Chu Said.