"Risks are mounting and complacency only compounds them" (KKR)
Is private credit a generational opportunity or a slow moving train wreck?
Here's a recent KKR take:
"...the evolution of global credit markets reminds us that progress is never guaranteed. In the present environment, market participants need to be thoughtful and proactive."
"...the market is long capital and demand, but short product and ideas. Dispersion often obscures the bigger picture, which makes credit selection more important than ever. Some corners of the market feel more challenged than others, with risk and crowding often concentrated in the most familiar or well-trodden segments."
"While we remain optimistic about the road ahead, we would be remiss as credit investors if we didn’t acknowledge that risks are mounting and that complacency only compounds them."
---- Quick background ----
Two and a half years ago, we thought the real estate industry was steaming toward a massive financing gap ("Less debt, higher rates, and a flat/inverted yield curve have created a meaningful capital disconnect for real estate borrowers..."), which we thought would lead to a lot of focus on private credit:
We pointed out that investors were responding to the "easiest fundraising pitch of all time" by chasing equity-like returns for debt-like risk.
But we also speculated that the "the path to deploying this capital could be bumpy," predicting a surge of capital chasing equity-like returns for debt-like risk, compressed returns, scaling difficulties, and meaningful downside risk.
How does the private credit rage end?
A) Generational yield opportunity
B) Orderly rebalancing
C) Implosion
D) Other
COMMENTS