Friends Not Foes

Core Insights - The relationship between private credit and liquid credit is evolving into a symbiotic coexistence, with both markets complementing each other rather than competing [2][3] - Private credit has grown to over $1.7 trillion in assets, becoming a mainstream asset class and a significant part of institutional portfolios [3][9] - The interplay between private and liquid credit markets enhances the range of credit solutions available to borrowers, supporting their financial health [3][10] Market Dynamics - The rise of private credit was accelerated by the 2008 financial crisis and further solidified during the Covid-19 pandemic, as traditional lending sources retreated [6][9] - In 2022, private lenders provided essential financing when liquid credit markets were subdued, demonstrating the flexibility and responsiveness of private credit [11][12] - As of 2024, refinancing activity has reached parity between direct lending and broadly syndicated loans, with approximately $25 billion in loans moving in each direction [12][13] Investment Proposition - Investors can optimize their portfolios by blending private and liquid credit, which allows for a balance of yield, liquidity, and volatility [15][20] - Liquid credit offers better tradability and pricing, while private credit provides stability and attractive yield premiums, especially for smaller or more leveraged businesses [18][20] - The diversification benefits of combining these two markets allow investors to access a broader range of company sizes, sectors, and geographies [21][25] Future Outlook - The demand for financing is expected to remain high, driven by large-cap M&A activity and increasing capital expenditure needs across various sectors [24][25] - Both private and liquid credit markets are anticipated to play crucial roles in meeting these financing requirements, potentially collaborating on larger deals [24][25] - Investors are encouraged to explore less traditional areas such as asset-backed finance and liquid structured credit as part of their diversification strategy [25][27]