News Digest: Default season looms large over private credit funds
October 17, 2022
Private credit as an asset class witnessed unprecedented growth over the past two decades and it comes as no surprise that a market with five monikers, clearly presented itself with enough headroom for such growth. However, it looks this balloon is in danger of bursting.
As other asset classes shrank since the global financial crisis appeared on the horizon, banks shut down its lending hatches and reduced loans to smaller borrowers and those operating their businesses in riskier domains. This funding gap was eagerly filled by non-bank lenders, says a report in FT.com.
What this resulted in was a burgeoning saset class for investors that grew from just $41 billion in December 2000 to $31 billion by December 2010. As on December 2021, this swelled to $1.22 trillion. Now with mounting inflation and global recession glaring down, this asset class seems to be in the eye of the storm. “Non-accruals, problem loans and restructurings will rise, says Clay Montgomery, senior analyst at Moody’s.