John McNichols:

Private credit is getting a lot of headlines these days. Software direct loans, redemption queues at semi-liquid funds, fraudulent working capital loans. These are all real problems that investors and managers have to deal with. But they all relate primarily to direct lending, and to some extent asset based finance, rather than the full spectrum of private credit asset classes. It is true that Direct lending and asset-based finance have been the fastest growing private credit markets over the past decade or so. But they represent little more than half the total volume of non-bank, non-government private credit AUM. The rest is comprised of private real estate credit, infrastructure debt, corporate mezzanine debt, agriculture loans, corporate private placements, and other miscellaneous financings. Each private credit asset class has distinct set of characteristics, and within each asset class there is still more diversity with respect to risk and return. Investors should understand this full spectrum of opportunity as they embark on selecting strategies and managers to partner with in credit markets.

Jeremy Keenan:

Global private real estate debt markets are comparable in scale to major fixed income markets, yet they offer very different strategies and performance profiles. They play distinct roles within a portfolio, from defensive income generation to more opportunistic return enhancement. The sector has undergone a material repricing. Following the correction in commercial real estate values spurred by the run up in global interest rates, lending today is taking place against property values that are, on average, around 20 percent below peak levels. Underwriting standards have tightened, leverage is lower, and structures are more conservative. In addition, illiquidity premiums to public equivalents are offering attractive risk adjusted return to investors. At the same time, fundamentals in many markets are very attractive. Core real estate credit strategies typically target investment grade equivalent returns, offering duration and a bias toward positive credit migration. Core plus or transitional strategies seek higher spreads through predominantly floating rate exposure, supported by active asset management and improving cash flows. Structured real estate credit sits higher up the risk curve, delivering tactical solutions across the capital stack, from mezzanine debt to preferred equity.

John McNichols:

At more than $3 trillion and counting, the private credit markets provide both long-term structural pathways, to earn complexity and illiquidity premia, as well as short-term opportunities to capture relative value.