Displaying items by tag: private credit

Private credit has shifted from corporate finance to consumer lending, with firms like Elliott, Carlyle, and Fortress purchasing billions in loans from FinTech’s. Companies like Klarna, SoFi, and Upstart, once dominant, have struggled with high costs and rising interest rates, prompting them to offload loans. 

By moving loans off their balance sheets, these FinTech’s hope to boost new lending, though the long-term financial impact is uncertain. Upstart, known for its AI-powered underwriting, faces substantial risks from loan defaults, leading to significant losses. 

Private investors, focused on high returns from loan interest, are seizing opportunities, as seen in deals that boosted stock values for Upstart and SoFi. Despite FinTech’s’ ambitions to disrupt traditional banking, private credit is now positioned to challenge their dominance.

Finsum: We’ll see if private credit can improve where fintech has not, but this could drastically change the industry. 

Interest rates are on the decline, yet economic growth remains steady. As the year wraps up, investors are feeling optimistic despite some slowdown in growth, which is occurring gradually rather than sharply. 

With more clarity around interest rate movements, Alliance Bernstein anticipate increased investor confidence, which should spur capital formation and boost private market transactions. Lower borrowing costs, following the sharp rise in recent years, are expected to encourage mergers and acquisitions as well as demand for middle market loans. 

Additionally, the trend of bank disintermediation is creating new opportunities for private credit investors to diversify and grow their portfolios. Overall, navigating this evolving economic landscape will require a focus on quality and thoughtful diversification to manage risks effectively.

Finsum: We expect lower rates to facilitate further expansion of private credit as there is more consumer spending to support investments. 

Blackstone Inc. predicts the private credit market could expand to $30 trillion, driven by infrastructure financing and pensions. Currently, private debt stands at $1.7 trillion, primarily funding private equity, but Rob Horn, global head of infrastructure and asset-based credit at Blackstone, views this as just a fraction of the opportunity. 

Private lenders are expected to take market share from banks, which now dominate the asset-based credit sector, with Blackstone focusing on areas like energy transition, digital infrastructure, and real estate. 

Pension and sovereign wealth funds are also taking notice, potentially increasing their private debt allocations. Blackstone expects significant future growth in sectors like data centers, where investments could top $1 trillion over five years. 

Finsum: While private equity has struggled to secure its footing in the same way private debt has, this expansion looks very stable. 

The bond market is experiencing a notable transformation, similar to what the equity market saw with the "barbell effect." Investors are splitting their capital between low-cost passive funds like ETFs and high-return alternatives like private credit, while traditional active managers are struggling to stay competitive. 

Bond ETFs have gained ground, fueled by rising interest rates, offering lower fees and better liquidity. Meanwhile, regulations are pushing banks to offload risky debt, increasing partnerships with private credit firms. 

This shift is spurring innovation, and major players are betting on private credit becoming a mainstream asset class.

Finsum: Seeing how the long-term impact of private credit affects the bond market will be worth monitoring tightly over the coming years but more immediately, this rate cycle.

Apollo Global Management secured $5 billion in funding from BNP Paribas as part of a move to expand its asset-backed lending business, traditionally dominated by banks. BNP’s commitment, which may increase over time, will support deals initiated by Apollo and its Atlas SP unit, which was acquired from Credit Suisse. 

Apollo aims to grow its credit business significantly, with plans to generate $200 to $250 billion in annual volume through its origination platforms within five years. The partnership reflects the growing presence of private credit in financial markets, where asset-backed lending has become more attractive due to its potential for higher returns. 

This funding boost adds to previous investments from the Abu Dhabi Investment Authority and MassMutual, further solidifying Apollo’s influence in private credit.

Finsum: We’ll see how the relative attractiveness of private credit plays out given interest rates might be falling.