Private credit “golden age” to continue
The “golden age” of private credit will continue, despite challenges such as rising costs for GPs and growing calls for liquidity.
A new report from law firm Barnes & Thornburg has concluded that the private credit boom is set to continue, with 93 per cent of funds saying that they have either implemented, are implementing, or are considering implementing a private credit strategy.
The law firm found that tighter lending conditions and high interest rates have fuelled demand for private credit, with 63 per cent of the credit-focused professionals surveyed saying that tighter bank lending standards have had a positive impact on the market.
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Almost half (47 per cent) expect the market will shift upwards as small and mid-cap players increasingly target larger deals.
“A lot of these smaller credit funds compete by ‘clubbing up’ or partnering with other funds to keep those deals away from the bigger players,” said M. Shams Billah, a partner in Barnes & Thornburg’s private funds and asset management practice and leader of the firm’s private credit team.
The report expects the private credit sector to continue its momentum in the year ahead, although default rates could rise if interest rates remain high.
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“Given the increased stress in the direct lending market, we expect more fund managers to sell or reduce some of their loans in their portfolios and seek secondary liquidity to rebalance them,” said Gregory G. Plotko, a partner in Barnes & Thornburg’s restructuring and bankruptcy practice.
“We are also seeing an increase in activity in the secondary market trading space for direct loans, whereas traditionally it was reserved for broadly syndicated and public debt.”
The report estimated that US private market assets under management reached a value of $24.4tn (£19tn) by the end of 2023. There was approximately $3.9tn being held in dry powder on private equity books as of April 2024.
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