After more than a decade of consistent growth, private credit markets are maturing. They are no longer solely about gaining access to a new asset class and capturing a perceived illiquidity premium. Now, higher rates and growing economic uncertainty are reintroducing more traditional cyclical forces, particularly to lower-quality credit markets.
Meanwhile, changes to bank business models – spurred by elevated rates, evolving regulations, and stress in real estate markets – are fueling growth across various forms of corporate and asset-based finance. Investors now have access to a more diverse array of credit types, each with distinct characteristics, risk profiles, and starting conditions.
The boundaries between public and private markets are also blurring, allowing investors to pursue relative value across a much broader landscape. This new environment should favour investors who can master asset selection and portfolio construction.
We see increasing opportunities for well-resourced investment managers in three main areas:
- Finding relative value across public and private markets: Comparing similar credit profiles to identify opportunities.
- Focusing on sector and asset selection: Carefully evaluating risks and rewards across different subsectors, and analyzing individual assets and deal structures.
- Capitalizing on structural alpha: Leveraging market inefficiencies to uncover additional value.
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Supporting documents
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