With the S&P 500 on track to have its worst monthly performance since December of last year, investors are increasingly exploring alternative assets beyond stocks and bonds for better returns.
Private credit has emerged as one such strategy. Despite the shifting macro environment, this industry has consistently posted annual gains for the past 13 years and continues to garner interest from institutional investors. A new report by Pitchbook predicts that investors will commit over $200 billion to private credit this year, marking the fourth consecutive year of such strong interest.
Although concerns exist about the impact of higher interest rates on borrower balance sheets, Michael Arougheti, CEO of one of the world’s largest private credit firms, is not overly worried about a major default cycle.
“I anticipate a slight increase in default rates but not to dangerously high levels,” Arougheti told CNBC’s Leslie Picker. “The unique nature of this moment, unlike previous cycles, is that stresses are being caused by liquidity and high rates rather than deteriorating cash flow.”
However, as servicing debt becomes more costly, it may lead to more negotiations between private credit managers and borrowers.
“If rates remain high until the end of 2024, that debt service will push companies back to the negotiating table,” added Arougheti.
Arougheti highlighted that his firm has actually benefited from rising interest rates, enhancing their relative return. He pointed out that by analyzing data from the 3,000 portfolio companies that Ares lends to and invests in, he has observed “fundamental strength despite the rise in rates.”
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
