Private Credit - Questioning The Narrative

Summary

Private credit refers to privately negotiated loans provided by non-bank financial institutions to corporate borrowers. Despite the mainstream financial media's forecasts of a coming crisis in Private Credit Lenders, this presentation takes an objective look at the numbers to ascertain the validity of these forecasts.

Key Points

• Private credit market size: The global Private Credit AUM has grown significantly over the years, with a notable increase in the past decade.
• Interest rate sensitivity: Private credit loans utilize floating interest rates, and lenders demand higher yields to compensate for the lack of liquidity.
• Performance metrics: The State of Private Credit Report reveals that non-accrual levels remain moderate, and portfolio credit loss is within historical levels, indicating limited stress across the industry.
• Borrower leverage: Borrower leverage is not increasing and is within historical norms, with loan-to-value ratios remaining conservative across segments.
• Counter-cyclical investment: Private credit is an important investment class due to inverse correlation with equities and its ability to generate superior levels of income in higher interest rate environments.