As banks shy away from some riskier lending activities, private debt markets are helping fill the gap
at its fastest pace in four decades. The reversal has already caused turmoil in the banking industry; as we published this, the share price of First Republic, a lender based in California, had been bludgeoned. What does the new world hold for private markets?. The business of buying, managing and selling heavily indebted firms is more difficult today than at any point during the past decade. Returns look far less attractive now that yields have jumped on fixed-income investments.
Yet for the private-markets giants, private equity is becoming less of a focus. When Blackstone reported its first-quarter results on April 20th, for instance, the company’s credit funds stole the limelight. During the quarter they received a big chunk of inflows from investors, and assets under management in the firm’s credit-and-insurance arm now exceed those in private equity. In recent years both Apollo and.
For investors, the allure of private markets remains. Those repositioning their portfolios are likely to do so within private markets rather than move away from them. According to a recent survey of institutional investors conducted by BlackRock, an asset manager, 43% were planning to substantially increase their allocations to private equity.
Private markets are notorious for their opacity. As the private managers grow in size and complexity, and their insurance businesses expand, regulators must be watchful. A significant rise in corporate defaults could also test how judicious a lender private credit has really been. Nonetheless, regulators have historically welcomed the transfer of risky lending activities from deposit-taking banks to non-bank institutions, with good reason. The process of maturity transformation at banks exposes them to runs, and ordinary depositors to losses. A shift towards private credit, where sophisticated investors bear the risks instead, is preferable.
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