Global private credit momentum to continue on the back of higher for longer rates, increased corporate activity

Investor demand for global private credit is set to continue on the potential for interest rates to remain ‘higher for longer’, and increased signs of corporate activity in key markets, according to a private credit specialist.
Private lending should remain competitive even if interest rates in the USA and Europe ease further, said Nehemiah Richardson, CEO of Pengana Credit. “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.
“Even if yields come down they will remain attractive if rates stabilise at a higher for longer level.
“Some lowering of interest rates can also bring positives for global private credit. For example, the credit quality of borrowers will improve as lower base rates reduces their interest payment burdens.”
Mr Richardson said the underlying structural change which has seen private credit explode globally since the GFC should continue driving growth in the asset class. “Global private credit is not wholly dependent on interest rate movements. It is a profound structural change in banking post-GFC, which is why private credit kept growing while base rates were at zero.
“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.”
Richardson said there are already signs of a pick-up in corporate activity in the USA and Europe. “There currently seems to be an appetite to invest in growth. We’re seeing mergers and acquisitions starting to gain momentum, along with organic growth.
“It’s a demonstrable increase in activity.”
Yet with substantial uncertainty around the globe, Richardson said manager selection and the quality of underlying loans remain paramount. “Global and economic uncertainty puts the onus on robust manager selection, and wide diversification across the best private credit opportunities.”
Pengana has partnered with Mercer to launch several different global private credit vehicles, including the TermPlus online term accounts for retail investors, the listed Pengana Global Private Credit Trust (ASX: PCX), the unlisted wholesale Pengana Diversified Private Credit Fund, and an SMA Fund.
Globally, the private credit industry has surged since the GFC, having nearly tripled in value over the last 10 years to a US$1.5 trillion market size at the start of 2024. Some forecasts suggest the market could expand to US$2.8 trillion by 2028, with fund manager BlackRock predicting it will grow to US$3.5 trillion.
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