Private credit was seen as gaining as the banks retrench.Some 3,500 investors, bankers, and pension fund managers descended this week on the Beverly Hilton in Beverly Hills, California, for the 2023 version of the annual Milken Institute Global Conference.
Glenn Youngkin, the governor of Virginia who is discussed as a potential presidential candidate was there, as was Karen Bass, the mayor of Los Angeles. West Virginia Senator Joe Manchin was scheduled to appear onstage with Darren Woods, the CEO of ExxonMobil. The regional banking crisis is far from overin a transaction brokered by the Federal Deposit Insurance Corp.
Yet others were far more pessimistic. A senior executive at a large distressed debt hedge fund argued that the trouble was just getting started. This person, who asked for anonymity to speak freely, and others who spoke on the sidelines of the event think that the industry's losses may require banks to raise hundreds of billions of dollars in equity.
David Hunt, the CEO of PGIM, the investment management arm of the American Prudential insurance company, put it plainly during one panel. "The non-bank lenders have been taking share from the banks and that is only going to accelerate now with these failures and the rise in the real regulation on many of these regional banks," Hunt said.
The point is an acknowledgment that as the world has changed, credit has gotten tight, allowing lenders like those in the private credit sector to charge higher rates on loans with better protections. Koch, the rare manager at the conference to suggest there are problem assets in the private-credit industry, said that the pace of Federal Reserve interest rate hikes will lead to further challenges, as it has already caused problems in the banking system. Private credit may bear many losses, she said.
"That's not going to be fun in the next five years," Koch said, adding that TCW was on pace to raise more money than it ever had for its latest private credit fund."Just remember that 96% of private credit managers started post-global financial crisis. So there are many managers in this space that have only invested in a zero and low rate environment, and we can all be geniuses in a zero rate environment.