Aberdeen: Dislocation in public markets provides opportunities for private credit

The current high-interest environment and dislocation in public markets provide opportunities in the middle-market private credit space, according to analysts at Aberdeen.

The investment business said today that it currently favours private credit for potential diversification and outperformance in the current environment.

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In a statement, it said this is because private credit is more flexible and can adapt to challenging conditions, implementing mechanisms that allow investors to access parts of the market less impacted by trade policies.

It added that private credit can benefit from higher interest rates, caused by elevated geopolitical risk and trade tariff uncertainty, given that loans tend to be floating rate, so higher rates are accretive to returns.

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Looking ahead, Aberdeen said it notes concerns over tariffs and increased budget pressures in developed economies, but that the key is accurately pricing risk and remaining flexible to respond to changing market dynamics.

“In the wake of President Trump’s ‘Liberation Day’ tariffs the equity market saw significant volatility. But even before then, elevated geopolitical risk suggested that we may be entering a period of higher inflation and lower global growth than we have seen in recent decades,” said Lulu Wang, portfolio strategist for the abrdn Global Private Markets Fund.

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“This increases the case for certain private market sub-segments that could act as a hedge against inflation, such as infrastructure and real estate investments, which have inflation-linked contracts.

“Private credit too can benefit from higher interest rates given that loans tend to be floating rate, so higher rates are accretive to returns.”