Kevin Marchetti, head of U.S. direct lending at Man Group, discussed the current landscape of private credit during an interview at the SuperReturn International conference.
He emphasized that while the sector faces 'growing pains,' particularly highlighted by Blackstone's decision to cap withdrawals from its flagship fund and Partners Group's potential restrictions on capital withdrawals, the fundamentals in the middle market direct lending space remain robust.
Marchetti noted that default rates and losses are currently well below long-term averages, supported by tight financial covenants and strong institutional ownership. He pointed out that the rising interest rates, driven by inflation exceeding 4% in the U.S., could enhance yields on floating-rate assets in their portfolio.
However, he acknowledged the risks associated with liquidity, especially for retail investors who may not fully understand the illiquid nature of private credit investments.
Marchetti raised concerns about the sustainability of capital structures established during a zero interest rate environment and the potential impact on credit performance due to the influx of capital into the private credit space over the past decade.
He suggested that the dispersion in performance among managers could be influenced by changes in underwriting practices aimed at rapid deployment of capital