LONDON: The success of private credit has created a US$500 billion headache of finding a way to spend the money raised.
Fund managers could lose more than US$7 billion in loan deals within 48 hours this week, highlighting the difficulties fund managers face in allocating billions of US dollars of dry powder as the industry rapidly expands. did.
A lack of quality financing opportunities, renewed competition from banks, and a large number of new entrants have resulted in a lack of suitable deals to back up. This could spark a race to the bottom between bond funds and banks, posing systemic risks, Moody’s Investors Service warned last month.
Private credit companies, which manage around US$1.6 trillion, have already waived investor protections to secure larger refinancings, leaving them vulnerable to greater losses if borrowers default. It has become.
Adding to the problem, these funds have investment periods of three to five years, so providers can promise investors high returns and then sign up for low-quality loans to get their money out of the way. be.
“Yields were impressive earlier this year, but this is a fast-moving market and these high prices will be quickly out-competed,” says Thornwood, an investor who acts on behalf of family offices. said Daniel Bird, founder of Hill LLP. .
Last week, more than $7 billion worth of deals were at risk of falling apart, demonstrating just how difficult it is to get deals done. A consortium led by Permira and Blackstone has reportedly reconsidered its pursuit of European online advertising company Adevinta ASA, which the financier had expected to provide more than £3.5 billion in funding.
The next day, it was reported that Advent had called off the sale of CCC Intelligent Solutions Holdings. Private credit funds were providing at least US$3 billion in debt to bidders in the deal.
New providers are entering the private credit market, even as activity in the broader syndication market is once again in decline. Pictet Asset Management and Fidelity International have launched funds, and a number of banks and asset management companies are planning to do the same. — Bloomberg
