Conference Presentation, Panel, Fireside Chat
Credit Markets in Transition | Global Conference 2025
Milken InstituteMichael Piwowar, Michael Buchanan, Peter Gleysteen, Deborah Orida, Michael Zawadzki, Mike Pivovar, Mike Buchanan
- The global economy is entering a new era defined by short-term trade negotiation uncertainty and long-term ambiguity, with a base case expectation of slower but still positive growth that will likely prompt management teams to guard balance sheets and reduce aggressive capital expenditures.
- Market volatility is anticipated to increase significantly due to macro shifts, creating a divergence between weakening sentiment and resilient fundamentals that investors may exploit by adopting offensive strategies when valuations become attractive.
- Interest rate policy is expected to shift with a Federal Reserve bias toward cutting rates from the current 4.25% to 4.5% range to maintain flexibility while adhering to a core mandate of avoiding simultaneous recession and economic crisis.
- Tariff outcomes present two paths: a more probable scenario involving bilateral negotiations and fair trade agreements potentially finalized as early as the current week, versus a more concerning path focused on rebuilding the U.S. industrial base that entails time-consuming uncertainty, though offsets are expected from tax cuts and deregulation.
- The private credit sector is projected to grow significantly beyond the $2 trillion sponsor-backed finance slice to capture a $30 trillion-plus real assets and asset-based finance market, driven by regulatory pressures causing banks to hold fewer long-term assets and corporate lending to shift to non-bank partners globally.
- Approximately $45 billion in public fixed income is expected to activate into private credit this year, while the market evolves toward a portfolio of specialists offering multi-asset credit solutions that blur the lines between public and private markets.
- While current credit health remains strong with default rates below 50 basis points and robust loan structures, dispersion is forecast to widen, creating potential weakness in out-of-favor, capital-intensive sectors and among smaller borrowers.
- The primary recession risk is identified as a U-shaped scenario rather than a V-shaped recovery or a rare deep, straight-line decline, though any recession is expected to be more shallow than significant due to strong corporate balance sheets.
- Private credit providers are anticipated to become a preferred financing solution during volatility by offering speed, certainty, and flexibility, leading to increased bank-allocator partnerships where banks focus on origination while allocators match assets to client needs.
- Effective diversification will require rethinking conventional methods as industry classifications become outdated and the traditional 60/40 split fails to reflect true diversification, while investors seek inflation protection through infrastructure and other defensive asset classes.