Private credit faces a slow bleed
The bear case argued for private Business Development Companies (BDCs) and interval funds is that they face a prolonged period of redemptions, asset gating, and a tough fundraising environment.
The argument
The speakers argued that while top-tier firms like Apollo are highly skilled, the broader private credit space is vulnerable to liquidity mismatches where retail investors want out of illiquid structures. Furthermore, unlike real estate, the underlying collateral in many of these portfolios is software, which lacks tangible recovery value in a default scenario.
The thesis, stress-tested
✓ What validates it
- ✓Increased redemption requests or asset gating announcements by major private BDCs
- ✓A rise in default rates or lower-than-expected recovery rates on software-heavy senior loans
▸ Risks discussed
- ▸Top-tier managers like Apollo may survive unscathed due to superior credit underwriting
- ▸Forced selling of portfolio assets could trigger bank leverage covenants
Hear it yourself
"do believe some credit issues are surfacing, but will instead state here again the unhealthy relationship between private credit and some in retail with the differing time horizons and views on liquidity. Either way, an increase in redemptions and horizon default rates will lead to a higher cost of capital for borrowers and a tightening of lender lending standards. So this is what I mean. It's not"
09:13 · 09:13
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