Private Markets: A Look at the Last 18 Months
The private markets have seen a significant surge in activity over the last 18 months, with more investors becoming aware of the opportunities that exist in this space. According to Frank Danieli, Managing Director, Head of Credit Investments & Lending, the evolution of private markets has been ongoing for the past two decades, but has gained more attention recently due to the shrinking number of banks globally and the focus of traditional lenders on vanilla products.
In the US, Ashees Jain, Managing Director, US Chief Investment Officer, notes that private markets used to be quiet, but as deals have increased in size, they have received more attention from the overall market. However, the question arises – are we currently in a bubble in the private credit market?
Danieli explains that while some parts of private lending may be overheated, there are other areas that are underserved. With risk spreads tight in public fixed income, investors are looking to the private markets for higher returns. Jain adds that the market is likely to continue evolving, with new private credit managers entering the space and huge investor demand for the returns available.
Looking ahead, Jain emphasizes the importance of finding the right areas to invest in within the private credit market to distinguish good performance from average or poor performance. Outside factors, such as the direction of interest rates set by the US Federal Reserve, could also impact market sentiment and investment performance.
In terms of the best private credit investments in the current cycle, Jain highlights asset backed finance as a strong option, particularly in the US. This type of lending provides both interest and principal across the life of the loan, with a more enforceable security package compared to corporate cash flow lending. In Australia and Asia, asset based finance remains exciting, driven by regulatory standards on banks and the emerging trend of non-sponsor back lending.
Overall, the private markets have taken off in the last 18 months, offering a range of opportunities for investors to explore and potentially capitalize on in the evolving landscape of private credit.
