Arrow Global's Toni McDermott maps three private credit origination models

Arrow Global's Toni McDermott has set out a taxonomy of private credit origination in a Private Debt Investor commentary, naming self-sourcing, bank partnerships and synthetic risk transfers as routes that vary widely and carry different consequences for the investor underneath the fund. It is an argument about plumbing, the kind that tends to be settled in fund documents long after anyone has read the essay.

Origination model rarely surfaces in a diligence stack, where investors price spread, leverage, documentation and concentration, and the question of which door a loan came through is usually answered with a line about the sponsor relationship. McDermott's taxonomy points at what that shortcut hides. A self-sourced book reflects the manager's own selection; a bank partnership implies a pipeline shaped by another institution's decisions about what to hold and what to move; a synthetic risk transfer implies exposure defined by structure as much as by borrower. The last is the route where credit work most likely sits upstream of the investor's diligence, and it is the one that turns origination model into an investor-protection question: partnerships and risk transfers scale on a curve hiring lenders cannot match, and both are correspondingly harder to underwrite from the outside.

The taxonomy also lines up with the position this desk has argued: private credit's growth frontier is the balance sheet, financing asset pools through structures ABS markets can price, where managers able to source pools and securitize them outgrow the unitranche incumbents. Bank partnerships and risk transfers are two ways into that trade, and neither requires staffing a lending team borrower by borrower. It reaches the insurers-as-anchor-pools argument too: if insurers and defined-contribution schemes become co-underwriters of the structures private credit needs, then a manager's choice of origination model is partly a choice about whose capital rules, and whose marks, the end investor ends up living with.

Arrow's own record is the useful check on the argument. The €5.2bn fundraising haul our August reporting found lifted FUM 44% to €15.5bn while deployment barely moved, and the money arrived with investors funding the purchase of legacy credit rather than new origination. A later look at private credit secondaries drew the same line from the other direction: seasoned loans are a deliberate strategy, not a distress trade. A manager can win the origination argument in print while the money arrives for a different activity.

The next test is whether origination model migrates out of commentary and into the fund documents investors actually negotiate, where the answer will be written on the LP side of the table, starting with whether risk-transfer vehicles get the same disclosure as a closed-end fund.