In a piece for AdvisorEdge, James Langton discusses how banks are tightening their lending standards which could present an opportunity for alternative investment managers. According to a report by Fitch Ratings, there is a surge in interest for private debt from borrowers. In North America, private credit funds’ assets under management increased from $242.7 billion in 2010 to over $1 billion at the start of the year. 

And, this trend should only accelerate in the coming years especially as regional banks are a key source of funding, and many are struggling with an inverted yield curve. The crisis in regional banks earlier this year underscored their perilous position. Thus, it’s not surprising to see a flurry of new private credit funds. In the second quarter, 34 new funds were launched, raising $71.2 billion, more than double what was raised in the first quarter. 

Private credit is more insulated from rising rates due to its reliance on floating rate-loans. Additionally, default rates have remained at historically low levels at 1.6% in Q2 and 2.2% in Q1, indicating that the overall economy remains resilient and rewarding investors in these funds. 

Finsum: Funding from banks is increasingly difficult to access given tighter credit standards and challenges for regional banks. This is creating an opportunity for alternative investment managers as private credit funds step into the void.