Private Credit's Momentum Persists Amid Changing Rate Landscape

As interest rates begin their downward trend, one might assume that private credit investments would lose some of their appeal.

However, the chief executive of Pengana Capital Group's dedicated private credit division remains optimistic about the sector's future due to ongoing investor enthusiasm.

Nehemiah Richardson, CEO of Pengana Credit, anticipates that interest rates will stabilize at comparatively elevated levels and even suggested that there might be an uptick in corporate dealings across strategic regions like the US and Europe.

“There is a broad consensus that the US and European central banks will ease, but at a gradual pace and with the likelihood that rates will be higher for longer,” Richardson remarked.

This potential stability offers private credit sustained lure, making it a compelling choice for investors even in the face of potential yield reductions. Furthermore, Richardson points out that a decrease in interest rates could enhance the creditworthiness of borrowers by lessening their interest liabilities, thereby benefiting global private credit markets.

The appetite for investment seems to remain strong, with observable trends such as increasing mergers, acquisitions, and organic growth fueling the sector, thus indicative of substantial dynamism.

Moreover, changes in banking infrastructure, specifically after the Global Financial Crisis (GFC), have drastically elevated the private credit sector, which reached about US$1.5 trillion by early 2024. This growth stemmed primarily from adjustments independent of interest rates, according to Richardson.

Referring to post-GFC market developments, Richardson observed, “Banking in the USA and Europe is very different from our experience in Australia, as locally 90 per cent of corporate lending happens via the major banks – in the USA and Europe the vast majority of mid-market corporate lending is funded by private credit managers.”

Rather than purely relying on interest fluctuations, the expansion of the market is anchored in these pivotal shifts, differentiating it from conventional bank finance, and keeping private credit robust even during periods of low base rates, a phenomenon that The Australian reported on.

Published:Tuesday, 17th Dec 2024
Source: Paige Estritori

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