PODCAST:Odd Lots
TITLE:This Is the Impact of Billions Flowing Into Private Credit
DATE:2024-01-08 00:00:00
URL:
MODEL:gpt-4-gizmo
In this episode of the Odd Lots podcast, hosts Joe Weisenthal and Tracy Alloway discuss the expanding private credit market and its potential impact on the economy. They're joined by Ben Emmons, a senior portfolio manager at New Edge Wealth, who shares his insights on the rise of private credit and its role in the financial system.
The conversation begins with a discussion of why investors are attracted to private credit. Emmons explains that private credit offers true diversification and is traditionally non-correlated to equity or fixed income markets. This asset class has historically shown low default rates and is managed by private lenders who have direct control and governance over the loans, allowing for strict enforcement of terms. This personal, hands-on approach to lending is a key aspect of private credit’s appeal.
Emmons also notes that most companies in private credit funds are non-listed and have no interest in going public. These companies typically have a long-standing relationship with private lenders, which is a crucial element in securing funding. The rigorous governance and close relationships between lenders and borrowers in private credit contrast with the more standardized lending processes in public markets.
The discussion then shifts to the macroeconomic impact of private credit. The growth of this market has partly filled a void created by banks scaling back on syndicated loans. Private credit has become a stable source of funding for small and mid-sized companies, crucial for driving GDP growth. Emmons observes that this trend has also created competition for regional banks, potentially lowering funding costs for businesses.
The conversation touches on the risks and potential concerns associated with private credit. While the funds generally exhibit low leverage, there's a need for more transparency and due diligence, especially regarding the companies receiving loans. The guests also explore the idea of what could trigger a crisis in private credit, suggesting that deteriorating lending standards or issues with the companies being lent to could be potential catalysts.
Emmons concludes that while there are risks, the overall impact of private credit on the economy has been positive, providing a stable funding source for companies that might otherwise struggle to secure loans. This new avenue of funding for small and mid-sized companies is an essential aspect of the current economic landscape. The episode ends with a discussion on the future of private credit and its role in the broader financial system.
