Private credit growth to continue post-Basel
The guest argued that private credit will continue to expand because the Basel III Endgame does not significantly alter risk weights for non-investment grade loans, keeping risky lending outside the banking system.
The argument
The guest noted that alternative asset managers are the structurally safer home for direct lending to highly indebted companies because they do not expose depositors to risk and have gated withdrawals to manage liquidity pressures.
The thesis, stress-tested
✓ What validates it
- ✓Continued growth in assets under management (AUM) for direct lending funds at major alt managers
- ✓Stable or increasing bank lending to private credit funds
▸ Risks discussed
- ▸Increased regulatory scrutiny on private credit markets
- ▸Potential slowdown in growth due to broader macroeconomic conditions
Hear it yourself
"So it's all about it's all about risk weights. Okay. The one exception being, GSIB surcharge. That's mainly a a separate construct. But for stress testing and for risk based cap you know, point in time capital requirements, that's all about risk weighting. Okay. What are the changes to the risk weighting in the Basel three endgame? What what are viewed as riskier and what is viewed as as less risky? You know, for for so for example, I think, treasuries and, agency mortgage backed securities are have quite a low risk rating currently, so they're highly incent incentivized."
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