Trends Watch: Private Credit Outlook

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Luke Powell, Managing Partner, Capital Markets, Coromandel Capital.

What is your outlook for private credit?

Coromandel Capital’s outlook for private credit (PC) is bullish. We believe PC will continue to offer consistent, attractive yields and some inflation protection without attributes that drive greater volatility and drawdowns in other asset classes. This is fundamentally supported by the fact that PC managers can deploy capital in a targeted manner into asset classes that are acyclical and counter-cyclical, thereby constructing a portfolio that is less or not correlated with economic cycles of traditional financial assets and may in fact persevere during times of macroeconomic uncertainty; and that most PC assets have short duration and floating rates, leading to lower interest rate risk and some inflation mitigation.

Where do you see the greatest opportunities and why?

With rapidly rising interest rates, a deleveraging of the economy is underway. Many over-leveraged consumers and businesses are (or will be) in distress. Now is a great opportunity to invest in services that help consumers and businesses avert bankruptcy and associated losses. In general, when the market is in a cautious, risk-off mode, there are more high-quality deal opportunities. “Be greedy when others are fearful!” For allocators, the current market conditions present great opportunities to find capable emerging managers to lock into their fund capacities and opportunistically deploy capital.

What are the greatest challenges you face and why?

Equity market conditions make it challenging for founders and sponsors to raise equity to further support growth, especially for balance sheet intensive businesses. Our clients utilize equity as hard credit enhancement in PC structures; this in turn affects further expansion and scalability of PC deals. The flip side is that PC has become an even more important source of capital, resulting in an influx of opportunities with incredible teams with solid unit economics that are sufficiently capitalized (despite the operating environment).

What keeps you up at night?

We seek to have a positive impact on society and as the Federal Reserve rapidly unwinds its easy money policy, the cost of capital has increased substantially which is passed onto end users over time. Although everyone in the economy feels pressures mounting, at-risk consumers and small business owners are affected the most. As a result, any of our society’s recent advances in diversity, equity, and inclusion as well as green energy may be at risk as allocators justify capital allocations.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.