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Investor Perspectives on Private Credit in 2023

15th Nov 2023
Jon Masters, Head of Business Development at INDOS Financial, was recently invited to moderate a panel at the Alternative Credit Council Global Summit in London.

With over 35 years’ financial experience and deep experience across asset classes, Jon is perfectly positioned to provide an insight into the panel. Following on from the successful event, he discussed the key elements:


Q: Please can you tell us a bit about the event?

Jon Masters (JM): Appropriately the event was held at the Banking Hall opposite the Bank of England, formerly the HQ of Lloyds Bank.  I say appropriate as Private Credit refers to lending which is provided by a lender other than a bank.

I was joined by an excellent panel whose businesses between them managed or allocated over $250 billion of assets.  The managers were represented by Alexis Atteslis, Co-Head of Europe at Oak Hill Advisors and Chris Boehringer, Head of Europe at Oak Tree Capital.  Sanjay Mistry, Head of Alternative Credit at the Pension Protection fund represented the investors.


Q: How did you begin to discuss such a broad subject?

JM: After introductions we quickly defined the scope and development of Private Credit.

It is indeed larger than just direct lending and encompasses a range of investment strategies each tailored to meet the requirements of companies and investors.  A brief list would include opportunistic credit, distressed lending, high yield, senior loans, mezzanine debt, structured credit and convertibles not to mention lending to real estate.

As an investible asset class Private Credit has grown year on year since the early 2000’s as banks have increasingly exited the space largely due to the pressure on their balance sheets.

There is currently $13 trillion of outstanding private credit which is four times the size in existence at the time of the financial crisis in 2008.


Q: What are some of the challenges that were brought up by the panel with respect to private credit?

JM: For many SME’s private credit is their only access to loan capital and thus it plays an important in the growth of economies.

Indeed, there is a focus to encourage retail/pension fund investment into long term assets classes such as private credit with the promotion of LTAF and ELTIF by the UK and European Governments.

For investors Private Credit has represented an important additional source of income whereby previously exposure to interest rate investments was more limited to government bonds.  Taking that extra credit risk on corporates certainly enhances return but requires good expertise of the manager.

The managers on the panel highlighted the depth of research that they undertake.


Q: Did the panel have any thoughts on the market for Private Credit in the current environment?

JM: Although there has been consistent growth, we may be reaching a point of change in the credit cycle.

The panel went on to discuss the impact of higher interest rates that now look like they will remain high for some time as represented by the US 10-year Treasury yield rising above 5% for the first time in 16 years.  Coupled with this there is a wall of credit renewals in the next few years both for governments and corporates.

Higher interest rates will certainly impact the value proposition for Private Credit.  Firstly, corporates renewing their debt will be impacted by higher costs that will impact their profitability.  Many of these corporates are un-hedged and will therefore see large increases and if also suffering cyclical difficulties they may well become distressed and potentially fail.  Lending to these companies is indeed a specialist undertaking which if done well can be done very profitably.

In these circumstances traditional banks will also be more likely to withdraw their loans putting an even greater onus on private credit as companies cannot rely on syndicated financing.

The wall of governments/ companies looking to refinance their debt over the next few years is another reason interest rates will remain high irrespective of the underlying inflation.


Q: Looking to the future, what were the key insights that you took from your panel of guests?

JM: Investors will need to pay careful attention to their portfolios and speak to their managers to ensure that the risks are being appropriately monitored.

Thoughts on developments in 2024 were on the bearish side and skills that used to be the expertise of the mainstream banks will need to be employed again.  However, what is certain is private credit will remain a very important part of any growing economy.


Q: And finally, how was your experience of moderating the panel at the Alternative Credit Council Global Summit?

JM: The panel was lively and kept the audience engaged. When the panel agree that it was a great discussion with a very fluid, natural and on-point style, you feel as a moderator that you also made a contribution!


How can JTC help?

JTC has developed unrivalled experience in the alternatives space.

As a result, JTC’s team can demonstrate an impressive knowledge of the money market, bonds and securities markets and this, combined with our cutting-edge technology systems, means we are extremely well-placed to provide a comprehensive, bespoke and high-quality outsourced debt fund administration solution.

To find out more, please get in touch with Jon directly.


About the Alternative Credit Council

The Alternative Credit Council (ACC) is a global body that represents asset management firms in the private credit and direct lending space. It currently represents 250 members that manage over US$1 trillion of private credit assets (November 2023).

The ACC is an affiliate of AIMA and is governed by its own board which ultimately reports to the AIMA Council.

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