a “once in a lifetime opportunity” in 2023

Investments banks may be cutting pay and jettisoning humans in 2023, but not all financial services jobs are shrinking. Speaking at the London School of Economics’ (LSE) Alternative Investments Conference, investors working in private credit said their area of the market is in its element.

Charlotte Muellers, co-head of North America credit investments at PSP Investments, the large Canadian pension fund manager, said that in normal times, “the private equity person’s glass is half full and the credit person’s glass is half empty.” But in 2023 the tables have turned. This is a “once in a lifetime opportunity from a credit perspective,” Muellers declared.

What makes this moment so especially exciting for Muellers is the huge “$35bn in hung commitments” at investment banks. This so-called ‘hung debt’ is debt that banks took on to finance M&A deals and leveraged buyouts. They expected to sell-on to investors, but have been unable to do so at a desirable price. As banks start to panic and sell the debt at lower prices, private credit investors waiting in the wings and are able to be “really picky,” she enthused. 

As this happens, she says the power dynamic in finanical services is changing. Private credit professionals are having a moment: “From a capital perspective, we’ve moved up the capstack.”

Muellers isn’t the only person excited right now. Writing in Apollo’s 2023 outlook, Torsten Sløk, chief economist at Apollo Capital Management, said that private investors are primed for a big buying opportunity. “We see a historic entry point in private credit and attractive opportunities in private equity for investors able to be providers of capital in a time of stressed and distressed markets,” Sløk declared. 

This doesn’t mean that all private capital funds are equally good employers, though. Privately, headhunters in the space caution against the long term impact of writedowns on private credit funds that are only intermittently marked to market. The pre-Christmas gating of redemptions at Blackstone’s private real estate fund is indicative of pain in the sector, of which there may be a lot more to come. 

Diana Tatarchuk, former Goldman Sachs executive director and CEO of credit management firm Nevé Capital, said that blockchain technology also has the potential to transform the space. “Right now securities settle in a very clunky way but blockchain makes it more immediate,” says Tatarchuk. Blockchain will do to credit what OpenAPI did for fintech” she said, adding that funds alert to this will be best placed to survive. 

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