Displaying items by tag: private credit

Private equity firms are overwhelmingly turning to private credit as a buyout means over traditional bank financing. In a survey by Dechert law firm 45% of private equity firms have increased their use of private credit in buyouts in the last three years, which was a 10% increase from the previous year. Now private credit only trails real estate and private equity in private capital assets and is expected to grow to $1.46 trillion by 2025. It's a combination of a borrowing flexibility and yield chasing that has investors opening the doors to private credit. Private markets also seem less tumultuous to global volatility with longer contracts that are locked up and untradable. This is a big reason more than 50% of PE firms said its their preferred method to finance buyouts.

FINSUM: Ultra low yields and global instability are the biggest draws to private markets, because we know they are statistically less correlated with super liquid debt markets.

Credit rating agency Moody’s Investor Service, has issued a warning to investors that the debt poses ‘systematic risk’. The factors that Moody’s sees sourcing that risk is an opaque market, eroding lending standards and liquidity concerns. Private credit has seen a flood of inflows this year to venture capital, private equity, real estate and infrastructure as the industry is more robust to the pressures from the mainstream economy on traditional bonds and equity. However, the risks in the medium sized boutique bond market are hard to capture because they fall in regulatory limbo and could cause broader economic disruption. Finally private equity relies heavily on leverage and while that's fine for the time being, it may pose serious structural issues for the illiquid market as interest rates begin to normalize.

FINSUM: The 2008 financial crisis was primarily driven by the rise of the lesser regulated shadow banking industry. Private credit’s swell is very reminiscent of the housing bubble creation.