AlbaCore: Credit inflows accelerate despite yield declines

Despite the lower-rate environment, inflows into credit funds have been accelerating, according to David Allen, managing partner and chief investment officer at AlbaCore Capital Group.

Allen noted that yields have been declining in line with rate cuts, but European high yield investments have been a key beneficiary of this trend. In the week ending 16 October 2024, European high yield funds registered inflows of €1.5bn (£1.25bn) – the highest weekly tally since March 2021. This brings year-to-date inflows to €10.3bn vs. €2.2bn for all of 2023.

This has created strong demand which has led to a wave of repricing activity as issuers seek to refinance more expensive debt issued over the past few years.

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Allen added that M&A activity is finally starting to pick up, and a return to IPO activity is expected, which should lead to more deal making opportunities.

“We do not expect a significant uptick before year-end,” said Allen. “However, 2025 may be a more constructive environment for deal making activity as the uncertainty posed by a year of record levels of elections is left behind.

“Next year sponsors will also be able to present a year of clean financials not skewed by the impact of rapidly rising inflation and interest rates.”

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Allen added that senior direct lending remains attractive to borrowers, which is driving lending appetite in the public markets, and creating competition for private credit lenders.

“Not unsurprisingly, the tightening spreads in public credit markets have led to some private credit facilities being refinanced in the public market,” he said.

“With a reopening of the syndicated market, sponsors are running dual processes, where they assess both public and private credit options for their new financing needs, and this has inevitably resulted in spread tightening in private credit as lenders look to remain competitive.”

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