Abrdn sees “robust” demand for private credit
Abrdn is seeing robust demand for private credit, with good opportunities in the market for incoming and existing investors.
In their house view for 2024, Lulu Wang, portfolio strategist, private markets at Abrdn, and Nicole Reid, research analyst, private market solutions at Abrdn, laid out their predictions for the year ahead.
“Demand for private credit continues to remain robust as traditional lenders pull back,” said Wang and Reid.
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“Given the elevated returns, expanded spreads, and protection from a low correlation to gross domestic product, the risk-return dynamics of private credit have become extremely appealing.”
However, the duo warned investors to be careful with their deal selection when it comes to choosing assets with downside risk. They also noted that while default rates have remained low to date, this is likely to change in the future.
“Default rates remain low by historical standards, but they are anticipated to rise in private credit as many private credit managers have not been fully tested since the global financial crisis,” said Wang and Reid.
“In addition, the market dynamics are fundamentally different from the previous cycle.”
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Wang and Reid predicted an end to rate hikes in 2024, with most central banks beginning to cut rates in the year ahead as inflation falls. In the US economy, they expect to see a slowdown followed by a mild recession, while European economies are set to remain weak until the middle of next year.
However, there will still be opportunities in the private markets, particularly private credit.
“Dislocation in the market is creating good opportunities, and lenders are in a position to demand stronger covenants and to execute deals at attractive risk-adjusted returns,” they added.
“Selectivity remains key. And with signs of distress and increasing default rates, high-quality deals are vital.”
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