MSCI: Private credit fundraising ‘may face testing times’
The economic fallout from shifting U.S. trade policy has the potential to spoil private credit’s two-decades long record for stable fundraising, analysts at MSCI have warned.
Preliminary fourth quarter 2024 data from the MSCI Private Capital Universe suggests senior-debt funds posted their first negative quarterly return since 2022.
“Given recent tariff-induced market volatility, private credit is now at risk of entering its first fundraising slowdown,” said Patrick Warren, vice president for MSCI Research.
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Private credit was “balanced on a knife’s edge in 2024”, Warren said – floating-rate loans generated income from high interest rates, but the asset class also faced the growing risk of nonperforming loans.
“Recent turmoil in public equities and looming recession fears may upset private credit’s delicate position,” he added.
The concern is that falling interest rates in response to economic distress could turn countervailing forces into two headwinds, as interest income falls and loans get written down.
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Historically, private credit GPs have averaged slightly more than three years between funds, according to MSCI data.
But private credit as a strategy has not experienced the kinds of prolonged losses faced by buyout funds in the era of the 2008 global financial crisis, or venture funds in the wake of the dot-com bust.
These downswings created a fundraising hangover, where GPs waited longer – sometimes much longer – than usual to raise their next funds.
“That may be the fate awaiting if a severe economic contraction sparks private credit’s first credit cycle,” Warren warned.
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