AllianceBernstein: Investors should increase private credit allocations

A senior executive at AllianceBernstein has urged investors to increase their allocations to the private credit market this year as new opportunities emerge.

The asset management company’s global head of multi-asset business development, Aditya Monappa, noted that middle market direct lending represents a particularly good investment opportunity.

“With private credit, the supply equation has changed,” he said.

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“We’ve seen this retrenchment of traditional credit providers. The net credit growth in the US, for instance, is really coming from non-bank sources.

“So, because of these very stringent capital requirements that have been put in place on banks, it has limited their ability to lend, particularly to areas like the middle market segment.”

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Monappa added that he favoured private credit over private equity due to of the various headwinds the latter faces, including the impact of higher interest rates weighing on returns. He predicted that private equity investments will provide “a bit of a slower grind” this year, compared to private credit opportunities.

Monappa pointed out that banks have been pulling back from lending in response to the Basel III regulations, meaning that much lending activity has migrated to the private market. Furthermore, he said that the private credit market has benefited from the fact that it mostly comprises floating rate notes.

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