Super-Rich Families Pour Into $787 Billion Private Debt Market

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by SpontaneousDisorder

Private credit has boomed globally as banks, under pressure from regulators since the global financial crisis to reduce risk, have pulled back from lending to smaller, potentially more vulnerable companies. The private credit market has expanded to $787.4 billion, from just $42.4 billion in 2000, according to London-based research firm Preqin. …

As the race to bag deals before rivals can get them intensifies, investors are also swallowing bigger risks when deploying their money, according to Snyder. …

So-called middle-market lending, which involves loans of $50 million or larger, is overcrowded. More competition has also started eroding the yields that made direct lending appealing in the first place. …

There are also liquidity risks. The underlying loans in private debt aren’t widely traded, which means they’re likely to be hard to sell in a crisis when markets turn volatile. In short, investors could find themselves looking on helplessly as their assets become worthless during a crash. Moreover, when investing in a closed-end fund with an asset manager, the capital is locked in with virtually no opportunity to withdraw until the asset matures.

“There’s a real reason the returns are as high as they are,” says Christian Armbruester, the founder of London-based Blu Family Office, who manages an open-end fund that contains more than 3,000 private loans worldwide. “If a borrower defaults, walks away, and the markets freeze up, you’re holding an asset you can’t move.”

The usual post crisis playbook. Banks pull back due to regulation and concerns about risk. Investors pour into illiquid risky assets in the great hunt for yield.

Not so easy to bail out when it all turns down.


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