Private Credit Tested as Volatility Rises – Moody's (IFR)

Growing volatility and redemption pressure in perpetual non-traded BDCs and semi-liquid funds are forcing the private credit industry into a rethink, according to a report by Moody’s Ratings. The industry is facing some of the strongest headwinds since it started taking off following the global financial crisis. Moody’s predicts that rising volatility, the growing role of retail investors in the asset class, and increasing regulatory scrutiny mean the industry will need to demonstrate greater transparency, enhance valuation discipline, and manage liquidity more actively. However, the agency stresses that private credit is not facing an existential crisis but rather a transition into a more mature phase, a view echoed by other market participants. “Even though there’s been a lot of talk about how credit is no longer the golden child of private capital, I also don’t think we can just reductively say that now, suddenly, credit is no longer an essential part of the private capital toolkit and that everything has fallen off a cliff,” said John Anderson, credit funds partner at Goodwin. “Current macro events may translate into a different pricing environment, but I’m convinced there’s still plenty of room for managers to responsibly underwrite and generate attractive, risk-adjusted returns.” Private credit remains supported by strong financing demand for data centers, energy transition, defense and asset-based finance, Moody’s said.

Read the IFR article for more.