(Bloomberg) -- Chief investment officer of Guggenheim Partners Investment Management Anne Walsh sees the private credit market potentially doubling in size to $4 trillion globally.
Speaking on a panel at Bloomberg’s Women, Money & Power conference in London on Tuesday Walsh expressed optimism about the growth of the $1.6 trillion asset class, but flagged concerns about the rise of new-fangled, untested structures directed at retail investors.
The retail market is considered the “holy grail” for private credit fundraising and should drive growth in the sector following a slowdown in investment from traditional sources of capital such as pension funds and endowments.
The likes of BlackRock Inc. and Apollo Global Management Inc. are making efforts to offer private markets to retail investors. The former has teamed up with Partners Group Holding to offer access, while Apollo is making efforts to build a private credit ETF.
Some retail products are designed to provide instant liquidity, Walsh said, but private credit has little. “I think there’s a challenge that regulators have in designing these products so that they can be invested in by retail investors,” she said.
Public, Private
Meanwhile, Oaktree portfolio manager Danielle Poli highlighted the increasing convergence of private credit and public markets. While public markets were once “spooked” by the rapid rise in direct lending in 2022, when banks retreated from the leveraged finance markets, there’s now a greater symbiosis between the two, and a greater use of hybrid solutions.
Around $20 billion of deals signed in the private credit market in 2022 have been refinanced into public markets, she said, either due to their size or the fact the borrowers needed “nuanced financial solutions.”
K2 Insurance Services, Circor International Inc. and Alegeus Technologies are among the companies that recently ditched their private credit lenders in favor of broadly syndicated loans.
Poli did, however, express unease over the rise of payment-in-kind debt — which can allow companies to push back interest payments until the moment the debt has to be repaid. “It is a little concerning when those levels creep up, so high, so quickly, where we are in the cycle.”
Mentions of PIK in company filings, presentations and transcripts have doubled since the start of the pandemic, according to data compiled by Bloomberg, as of August 2024.
Other panelists also highlighted the trend toward convergence.
Mubadala Capital’s Kelly Thomson said there’s room for middle market companies to have relationships with both private credit firms and banks as they’ll need different types of loans for different times in their company life cycle.
Client Relationships
Charterhouse Capital Partners’ Alison Rose, the former CEO of Natwest, said that while banks were “smart” to make partnerships with direct lenders, particularly as they moved into investment grade financing, they needed to be mindful of private credit taking away their relationships with clients.
Nevertheless, she agreed that more collaboration between the two was likely.
“You’ll get more of these building, almost conglomerate sort of capital providers,” she said.
--With assistance from Heather Harris.
(Updates throughout)
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