Panel
The Private Credit Playbook| Middle East and Africa Summit 2024
Milken InstituteWilliam Kelly, Carmen Alonso, Mathew Douglass, Stephen J. Ketchum, Drew McKnight, Bill Kelly, Matt Douglas, Steve Ketchum
- Private credit assets are projected to increase from $2 trillion currently to $3–$4 trillion by 2030.
- Asset-based finance, consumer finance, and non-sponsored financing are anticipated to surpass traditional LBO and non-sponsor financing as the primary growth drivers within the private credit portfolio.
- Large asset managers are expected to expand as multi-billion or multi-trillion capital pools mature, while smaller, focused funds may emerge to target specific niches where issuers cannot absorb large capital volumes.
- Approximately $435 trillion in wealth from the "baby boomer" generation is forecast to enter private credit and private capital markets, with trillions of dollars flowing from wealth management channels over the coming years.
- An ETF for private credit is proposed in the US to enable intraday trading, though this structure may introduce volatility; meanwhile, interval funds and Business Development Companies (BDCs) are expected to serve as primary vehicles for retail liquidity.
- Unified vehicle structures for private credit in Europe are expected to develop more slowly than in the US due to fragmented regulatory frameworks across different jurisdictions.
- The real estate sector faces a maturity wall and potential "reckoning" as buildings may be handed back if interest rates do not decline significantly from current levels.
- Competitive dynamics and high capital inflows are expected to pressure all-in returns, necessitating adjustments in LP return expectations.
- Sovereign debt growth is projected to continue regardless of election outcomes, with private credit potentially absorbing bank-held sovereign debt to stabilize the financial system.
- The "pick" rate, currently at 9%, remains a warning signal as it has risen from 4% five years ago, while legacy pre-pandemic transactions face refinancing pressures due to higher leverage and current interest rates.
- Significant opportunities for alpha generation are expected in asset-based finance, consumer finance, litigation finance, and intellectual property finance due to their uncorrelated returns and cash flow characteristics.
- The distressed credit market will remain highly dependent on timing and capital structure access, with opportunities becoming more ephemeral, while mezzanine capital may offer fixed rates, equity upside, and call protection if senior financing costs decrease.
- The mid-market is expected to remain a key area for opportunity, particularly where managers leverage sector expertise in healthcare, agribusiness, logistics, and energy transition as larger funds focus on mega-direct lending.
- The addressable market requires approximately $7.5 trillion in new capital over the next five to ten years to support $2.5 trillion in undrawn private equity commitments.
- The market is expected to continue diverging and specializing, requiring allocators to differentiate managers rather than treating the asset class as a monolith.