
Private credit has a problem: Too much money
Managers of private-lending funds have no shortage of money at their disposal. The question is whether they will have enough good places to put it.
During other recent bouts of volatility and uncertainty, private-credit managers of direct-lending funds—who raise money from investors to lend to relatively risky companies—have seen surges of activity and returns. Following the Covid-19 pandemic, direct-lending activity and investment returns both soared.
So President Trump's 'Liberation Day" trade policies, and the aftershocks and uncertainty for many companies in their wake, seem like they should herald another big moment for private credit.
This time around, however, there are some crucial differences. For one, this period of volatility is coming on the heels of a surge in private-credit fundraising. Traditional asset managers, banks and alternative-asset managers have all launched direct-lending vehicles, expanded partnerships and sought more retail funding.
At the same time, appetite from borrowers has been more limited than hoped for. This likely means that returns for investors, including the retail savers being courted by the private-credit industry, will be lower for some funds.
One big generator of higher-yielding loans is the private-equity industry, which requires a lot of borrowing to fund leverage buyouts. But economic uncertainty has put a damper on new deals, and the private-equity industry may be in even rougher shape than just that: Private-equity funds have been holding on to past investments longer, drying up cash flow back to investors in those funds. This hinders the deployment of funds for new deals.
'The industry has been beating the drum on M&A returning partly to justify the amount of capital they've raised," Josh Easterly, co-chief investment officer of alternative-asset manager Sixth Street, told analysts earlier this month on the earnings call for the firm's publicly traded business-development company Sixth Street Specialty Lending. 'The problem is that people paid too much for assets between 2019 and 2022, and nobody wants to sell those assets without an acceptable return."
This dynamic may also lead to lower yields on any new deals that do emerge, as lenders will be competing with each other on pricing.
'What you're seeing is an imbalance between supply and demand," says Marina Lukatsky, global head of research for credit and U.S. private equity at PitchBook LCD. 'When you see lenders competing for deals, that puts pressure on spreads." Spread refers to the additional yield on riskier loans over base rates.
Consider an estimate of the future performance of business-development companies. These are listed funds that raise public equity to invest in private loans. Back in 2021, the average BDC's annualized return on equity was 14.9%, according to figures from a recent letter by Easterly to shareholders of Sixth Street Specialty Lending. But in the letter, Easterly estimated that at the level of base rates expected by the market over three years, plus typical spreads for loans in the fourth quarter of 2024, the forward return on equity for a BDC would be 5.2%.
'At these spreads, the sector is not earning its…cost of equity," he wrote.
All of this helps explain why the biggest private-credit managers, such as Apollo Global, Ares Management, Blue Owl and Sixth Street, have put such an emphasis on originating new and proprietary kinds of loans, ranging from finding niches of consumer borrowing to multifaceted projects such as data centers.
Sixth Street's Easterly described it as 'more opportunity for complexity," and in particular lending to companies beyond those controlled by private-equity firms. Sixth Street Specialty Lending recently highlighted what executives called a 'bespoke" financing for a founder-owned rail and trucking software company, Bourque Logistics, at a weighted average yield of 13.9%.
Another advantage may accrue to managers that can combat the pressure on spreads on assets with lower funding-liability costs.
Apollo's chief executive, Marc Rowan, has often spoken of the dangers of too much capital without enough opportunity. Apollo's executives had also recently noted the unusually tight spreads earlier this year.
Yet the firm still opted to pursue inflows in the first quarter in the form of record issuance of so-called funding-agreement-backed notes to institutions via its Athene retirement-services unit. Essentially, Apollo decided that if money was coming cheap, it might as well tap that side of the market for now. That could boost future returns, even if spreads don't significantly widen.
'We were able to access cheap spread liabilities," but 'we didn't think it was appropriate to invest in tight spread assets at the same time," Apollo Chief Financial Officer Martin Kelly told analysts at a Barclays conference earlier this month.
Athene now has about $20 billion of cash and liquid assets waiting to be deployed, Kelly said. 'We'll put that to work as conditions come in, as we think is appropriate," he said.
If even the managers at the top of the heap expect to have to wait for the best pricing opportunities to come along, others may be waiting even longer.
Write to Telis Demos at Telis.Demos@wsj.com
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


News18
33 minutes ago
- News18
Trump Unveils '$1,000 Savings Account' For Every Baby Born During His Second Term
Last Updated: The proposal mandates the Treasury Department to fund the $1,000 initial investment, with newborns automatically enrolled in the program. US President Donald Trump unveiled a new federal program proposing government-funded $1,000 investment accounts for American babies, which he called 'Trump savings accounts'. The US President said that the initiative is one of the 'most important" components of his new proposed bill, despite immediate warnings from the Congressional Budget Office regarding its impact on national debt. During a White House roundtable- that included Dell CEO Michael Dell, Goldman Sachs CEO David Solomon and Uber CEO Dara Khosrowshahi- Donald Trump revealed specifics of the proposed savings accounts. These would be tax-deferred investment accounts designed to track overall stock market performance, benefiting children born between January 1, 2025, and December 31, 2028, he said. 'For every US citizen born after December 31, 2024, before January 1, 2029, the federal government will make a one-time contribution of $1,000 into a tax-deferred account that will track the overall stock market," Donald Trump said. The proposal mandates the Treasury Department to fund the $1,000 initial investment, with newborns automatically enrolled in the program. These accounts would be administered by parents or legal guardians, allowing for an additional private investment of up to $5,000. Donald Trump said that the initiative is 'a pro-family initiative that will help millions of Americans harness the strength of our economy to lift up the next generation." Legislative Hurdles For Donald Trump's Bill While the 'Big Beautiful Bill" has cleared the House, its journey through the Senate is expected to face stiff competition. The Congressional Budget Office (CBO) issued a report last week warning that the 'Big Beautiful Bill" is projected to add $2.4 trillion to the national debt over the next decade- indicating that such an increase would necessitate cuts to existing federal programs, including Medicaid and food assistance. The 'Trump savings accounts' cannot be passed as a standalone program and would require the successful passage of the broader bill. Get breaking news, in-depth analysis, and expert perspectives on everything from geopolitics to diplomacy and global trends. Stay informed with the latest world news only on News18. Download the News18 App to stay updated! First Published:


Time of India
an hour ago
- Time of India
Britannia's visionary AI is making grocery stores inclusive
HighlightsAmar Jain, a visually impaired advocate, expressed his triumph after using Britannia's AI-powered assistant, A-Eye, to shop independently for the first time, highlighting the technology's role in reclaiming dignity. The development of A-Eye was driven by insights from Amar Jain, co-founder of Mission Accessibility, and involved collaboration between teams from Britannia, WPP, Mindshare, Google, and the accessibility community, emphasizing the importance of building technology with real users. Britannia A-Eye not only enhances accessibility for visually impaired shoppers but also redefines inclusive technology by focusing on empathy and human impact, shifting the company's perspective from chasing reach to seeking relevance. When the visually impaired advocate Amar Jain first navigated a grocery store alone using Britannia 's AI-powered assistant , he didn't just shop—he reclaimed his dignity. 'This is the first time I've shopped for my family without help,' he said, his voice revealing a quiet, powerful triumph. This moment, modest yet profoundly moving, captures why Britannia's A-Eye isn't merely another technological advance; it's a deeply human story about reclaiming independence. An AI Born from Human Insight For Siddharth Gupta, general manager of marketing, Britannia, the spark came through Britannia Levitech, an innovation forum exploring how emerging technologies could enhance consumer experiences. On stage, alongside Niraj Ruparel, national head of emerging tech, WPP and GroupM, he saw Google Gemini's multimodal capabilities demonstrated and envisioned its potential beyond mere novelty. But the true breakthrough arrived later, during conversations with Amar Jain, co-founder of Mission Accessibility and a visually impaired Supreme Court lawyer. Jain illuminated real-world barriers visually impaired people faced in retail environments, steering the project from a tech-driven exercise towards an urgent mission. 'Innovation matters most,' Gupta realised, 'when it positively impacts lives.' From Vision to Reality Britannia's partner, Amin Lakhani, CEO, Mindshare South Asia, still recalls the first prototype test vividly. A visually impaired user from Mitra Jyothi NGO approached a product shelf. Britannia's A-Eye effortlessly described the product aloud—its ingredients, price, expiry date. Watching relief and pride spread across the user's face, Lakhani understood the profound significance of this simple interaction. 'That's when we knew this wasn't just technology, it was dignity in action,' Lakhani reflected. Powered by Google Gemini's multimodal AI, A-Eye transforms smartphones into intelligent shopping guides. Shoppers can now independently navigate aisles, identify products, and receive real-time vocal information, removing the constant dependence on others. Empathy Engineered Through Collaboration Building something genuinely inclusive required more than technological prowess, it demanded radical empathy and open collaboration. Teams from Britannia, WPP, Mindshare, Google, Logical Indian, and the accessibility community co-created the solution. 'The critical decision we made was not building this for visually impaired users, but with them,' said Gupta. In an unforgettable team session, experts and advocates passionately debated the project's form. Ultimately, they chose a lightweight, accessible mobile-web interface instead of an app, a decision underscored by simplicity and user freedom. 'That's what true collaboration looks like,' noted Lakhani. 'Purpose, design, and tech all in one room, shaping something meaningful.' When Innovation Means Inclusion One Mitra Jyothi user's quiet admission captures Britannia A-Eye 's emotional essence: she had never shopped independently for her daughter before. This AI innovation didn't just improve accessibility; it created a new moment of independence for a parent. Ruparel emphasised, 'Inclusion isn't just policy; it's lived experience.' The journey profoundly changed Britannia's own outlook on innovation. 'It shifted my perspective from chasing reach to seeking relevance,' said Lakhani. For Gupta, the lesson was clear: 'Innovation isn't just about technology, it's about empathy and human impact.' Today, Britannia A-Eye doesn't just help visually impaired shoppers, it fundamentally redefines what inclusive technology can achieve. It's a vivid reminder that true innovation is always human at its core.


Time of India
an hour ago
- Time of India
Elon Musk backs JD Vance — and Trump's not happy: Michael Wolff says the President is paranoid
Elon Musk backs JD Vance — and Trump's not happy: Michael Wolff says the President is paranoid: The story of Elon Musk backing JD Vance has taken a serious turn — and President Donald Trump isn't pleased. According to veteran political author Michael Wolff, the President is growing paranoid, even suspicious, of his own Vice President. With Trump currently in the White House and Vance just one heartbeat away, this isn't just political gossip — it's a sign of real tension at the top. Why is Trump worried about Elon Musk supporting his own VP, JD Vance? In a report published by Raw Story, journalist Michael Wolff revealed that President Trump is becoming increasingly anxious about Elon Musk's influence — and the way it's shaping JD Vance's political identity. Elon Musk, the billionaire CEO of Tesla and X (formerly Twitter), has reportedly suggested that Vance would make a better president than Trump himself. In private, Musk has allegedly encouraged key donors and Silicon Valley insiders to look to Vance as a long-term successor. That idea, according to Wolff, has deeply unsettled Trump. Even though Vance is his running mate and now serves as Vice President of the United States, Trump is said to see him as 'too close to Musk' and a potential rival rather than a loyal partner. Is Trump's fear of being replaced by Vance real or just political paranoia? Wolff says the fear is real — and growing. 'He's always been paranoid, but this is different,' Wolff told Raw Story. 'Trump sees Musk's money, his power on social media, and the way he talks about Vance — and he's starting to think there's a plot.' Live Events Wolff claims Trump is even considering 'loyalty tests' for his vice president, privately questioning whether Vance is more committed to the MAGA movement or to Musk's vision of tech-backed nationalism. The timing matters here. We're deep into 2025, with Trump now in his second term, and Vance being groomed by many on the right as the future of the Republican Party. That kind of speculation — especially when amplified by Musk — is enough to trigger Trump's deep political insecurities. How has JD Vance responded to Trump's growing suspicion? Vice President JD Vance has publicly downplayed the rift, but his words reveal the pressure he's under. In a recent interview, Vance said, 'I'm the vice president to President Trump. My loyalties are always going to be with the president.' He also called Musk's recent comments a 'huge mistake' that stirred up unnecessary division. Vance has spent the past year carefully balancing his loyalty to Trump with his appeal to younger conservatives and Silicon Valley influencers. That balancing act has worked — until now. As Musk continues to throw subtle shade at Trump and hint at a post-Trump GOP, Vance is increasingly caught in the middle. Behind closed doors, some Republican insiders say Vance is being advised to 'stay in his lane' — not to appear too ambitious, not to align too closely with Musk, and definitely not to outshine the president. But that's easier said than done when Musk has nearly 200 million followers on X and regularly fuels speculation about Vance's future. What role did the Epstein post play in escalating the drama? Things really boiled over when Musk posted — and then deleted — a message on X hinting that Trump's name might be found in Jeffrey Epstein's court records. No evidence was provided, and Musk has since gone silent on the matter. But the damage was done. Wolff said this was the moment that sent Trump over the edge. 'That was a silver bullet. Even if there's nothing there, just the suggestion of it reactivates all of Trump's worst fears.' The deleted post was widely screenshotted and shared across social media, giving critics of Trump a new narrative — and giving Musk's feud with the president a deeply personal edge.