The global economy has been growing slowly due to rising inflation and tightening credit measures by central banks. New baseline views assume a U.S. recession is likely before the end of 2023. Key findings, however, expect private credit to remain resilient and outperform public credit and fixed-income asset classes.
Why Private Credit?
Our complete insights on private credit are here. Below are 6 takeaways.
1. Pressure on Banking Systems
Banks globally face challenges due to rising interest rates. Silicon Valley Bank (SVB) was once the 16th largest bank in the United States. Despite its previous success, SVB experienced the 2nd highest bank failure in U.S. history. Other mid-size and regional banks have also failed, leading to concerns about the banking system’s stability.
2. Tightening Credit Conditions
With stress in the banking sector, there is potential for a credit crunch. Banks will likely strengthen their balance sheets, reevaluate credit portfolios, and become more restrictive in offering credit to businesses. These changes could create a funding gap. As a result, small and mid-sized companies might have difficulty sourcing capital from traditional banks.
3. Advantages of Private Credit
Private credit is an excellent hedge against inflation and rising interest rates. It is effective because companies generally receive it on a floating interest rate basis. Investors are also attracted to private credit as a diversification strategy because it offers stable income and risk-adjusted returns. These investments, furthermore, have a thorough due diligence process. This process ensures high credit quality, stable cash flow companies, and lower loan defaults.
4. Growth of Private Debt AUM
Our findings project that Private debt assets under management (AUM) will double from $1.2 trillion in 2021 to $2.3 trillion by 2027. Private debt investments have historically provided attractive returns with low volatility, making them an appealing asset class.
5. Potential for Substantial Growth
With banks tightening credit conditions, businesses may turn to private credit to maintain operations and fund growth plans. Small and medium-sized enterprises, notably, are likely to take advantage of private credit. Expect private credit to experience significant growth as the availability of traditional loans decreases.
6. Evalueserve’s Support
Evalueserve closely engages with private credit firms to streamline deal sourcing and execution and the portfolio monitoring process. Our tech-enabled suites, such as Spreadsmart, InsightFirst, and Performance Dashboard, support all the mentioned stages.
Read the full private credit whitepaper here for more information on emerging private credit trends and opportunities for investors.
