After years of strong growth through the era of zero rates, the outlook for private credit is suddenly darkening.
BlackRock calculates that between the end of 2018 and the end of 2022, the private credit market doubled in size from roughly $750 billion to $1.5 trillion.
With banks under pressure from regulators to curb lending to highly leveraged, private equity-owned companies, the managers of private equity funds seized the chance to attract allocations from institutional investors into new credit funds that offered decent yields after a long period of low defaults.
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That allowed the likes of Apollo, Blackstone, Carlyle and KKR to diversify into multi-asset, multi-strategy asset managers and at the same time ensure continued lending support to companies their equity funds owned.
But now, with no end yet in sight to the tightening of monetary policy, with yield curves inverted, economic growth stalling and less capital flowing into risk assets, there are likely to be rising defaults among private credit borrowers, according to Moody’s.
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