logo
Private credit has a problem: Too much money

Private credit has a problem: Too much money

Mint22-05-2025

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

Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

NASA Layoffs: Is Trump's budget cut approved by Congress? NASA asks employees to opt for early retirement, deferred resignation, or voluntary separation. Here's last date and terms of departure
NASA Layoffs: Is Trump's budget cut approved by Congress? NASA asks employees to opt for early retirement, deferred resignation, or voluntary separation. Here's last date and terms of departure

Time of India

time38 minutes ago

  • Time of India

NASA Layoffs: Is Trump's budget cut approved by Congress? NASA asks employees to opt for early retirement, deferred resignation, or voluntary separation. Here's last date and terms of departure

NASA has introduced a range of new programs aimed at reducing its workforce. These changes follow proposed budget cuts by the Trump administration for the 2026 fiscal year. The programs are voluntary and give employees multiple options for leaving the agency. New Programs for Staff Exit NASA sent memos to employees on June 9, announcing early retirement, deferred resignation, and voluntary separation incentive options. These programs are part of a larger workforce reduction effort. The goal is to reduce the number of NASA employees significantly by 2026. Also Read: 1923 Season 1 Netflix: Why will Netflix air only Season 1? Here's how and when to stream internationally by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like If You Eat Ginger Everyday for 1 Month This is What Happens Tips and Tricks Undo Reasons Behind Staff Reductions The Trump administration has proposed a 24% cut to NASA's overall budget for 2026. This proposal aims to lower the employee count from 17,391 to 11,853, a 32% drop. The proposed budget is still under review by Congress and not yet finalized. Deadline for Employee Decisions NASA has asked employees to decide by July 25 if they want to participate in the new staff reduction options. Those who opt into the Deferred Resignation Program will likely stop working soon afterward but will continue to receive pay until January 9, 2026. Live Events Also Read: This is why nearly 700,000 Americans lost Medicaid coverage in one month Terms of Departure According to the agency, employees who sign the separation agreement will start administrative leave within one to two weeks. Most participants are expected to complete their employment by January 9, 2026. Some critical staff may receive approval to delay their departure until April 1 or as late as September 30, 2026. Similar Changes Across Other Agencies NASA's new programs follow similar moves at other government agencies. Around 75,000 federal workers have already taken deferred resignation offers. Changes have also occurred at NASA's Jet Propulsion Laboratory (JPL), which recently ended remote work. Most of the 5,500 staff at JPL are now required to return to the office or resign. FAQs Why is NASA reducing its workforce now? NASA is responding to proposed budget cuts for 2026. These cuts aim to reduce spending and the number of employees across the agency. When will most participating employees leave NASA? Most employees who accept the offer will stop working by January 9, 2026. Some may stay until April or September 2026, based on need.

Iran claims US bases to be targeted if conflict breaks out between countries
Iran claims US bases to be targeted if conflict breaks out between countries

Hindustan Times

time41 minutes ago

  • Hindustan Times

Iran claims US bases to be targeted if conflict breaks out between countries

Iran threatened Wednesday to target US military bases in the region if conflict breaks out, while President Donald Trump said he was "less confident" about reaching a nuclear deal. Amid escalating tensions, a US official said staff levels at the embassy in Iraq were being reduced over security concerns, while the UK Maritime Trade Operations, run by the British navy, advised ships to transit the Gulf with caution. Watch: Iran swears to annihilate Israel in revenge: who will strike first & why? Here are 5 deadly triggers Tehran and Washington have held five rounds of talks since April to thrash out a new nuclear deal to replace the 2015 accord that Trump abandoned during his first term in 2018. Since returning to office in January, Trump has revived his "maximum pressure" campaign on Tehran, backing nuclear diplomacy but warning of military action if it fails. Also Read: Trump travel ban shows 'deep hostility' towards Iranians, Muslims, says Iran "All its bases are within our reach, we have access to them, and without hesitation we will target all of them in the host countries," Iran's Defence Minister Aziz Nasirzadeh said in response to US threats of military action if the talks fail. "God willing, things won't reach that point, and the talks will succeed," the minister said, adding that the US side "will suffer more losses" if it came to conflict. The United States has multiple bases in the Middle East, with the largest located in Qatar. Also Read: Why has Iran been banning people from walking dogs in public? Iran and the United States have recently been locked in a diplomatic standoff over Iran's uranium enrichment, with Tehran defending it as a "non-negotiable" right and Washington calling it as a "red line". Trump had previously expressed optimism about the talks, saying during a Gulf tour last month Washington was "getting close" to securing a deal. But in an interview published Wednesday, Trump said he was "less confident" the United States and Iran could reach a deal, in response to a question on whether he believed he could stop Tehran from enriching uranium. 'A shame' Iran currently enriches uranium to 60 percent, far above the 3.67-percent limit set in the 2015 deal and close though still short of the 90 percent needed for a nuclear warhead. Western countries, including the United States and its ally Israel, have long accused Iran of seeking to acquire atomic weapons, while Tehran insists its nuclear programme is for peaceful purposes. Last week, Iran's supreme leader Ayatollah Ali Khamenei said enrichment is "key" to Iran's nuclear programme and that Washington "cannot have a say" on the issue. During the interview with the New York Post's podcast "Pod Force One", which was recorded on Monday, Trump said he was losing hope a deal could be reached. "I don't know. I did think so, and I'm getting more and more -- less confident about it. They seem to be delaying and I think that's a shame. I am less confident now than I would have been a couple of months ago," he said. "Something happened to them but I am much less confident of a deal being made... Maybe they don't wanna make a deal, what can I say? And maybe they do. There is nothing final." Trump maintained that Washington would not allow Tehran to obtain nuclear weapons, saying "it would be nicer to do it without warfare, without people dying". On May 31, after the fifth round of talks, Iran said it had received "elements" of a US proposal for a nuclear deal, with Araghchi later saying the text contained "ambiguities". Iran has said it will present a counter-proposal to the latest draft from Washington, which it had criticised for failing to offer relief from sanctions -- a key demand for Tehran, which has been reeling under their weight for years. On Monday, the United Nations nuclear watchdog began a Board of Governors meeting in Vienna that will last until Friday to discuss Iran's atomic activities and other issues. The International Atomic Energy Agency (IAEA) meeting followed a report issued by it criticising "less than satisfactory" cooperation from Tehran, particularly in explaining past cases of nuclear material found at undeclared sites. Iran has criticised the IAEA report as unbalanced, saying it relied on "forged documents" provided by its arch-foe Israel. In January 2020, Iran fired missiles at bases in Iraq housing American troops in retaliation for the US strike that killed top Iranian general Qassem Soleimani days before at Baghdad airport. Dozens of US soldiers suffered traumatic brain injuries.

Tech could help process Census data within 9 months; mobile apps to be used for count
Tech could help process Census data within 9 months; mobile apps to be used for count

Time of India

time42 minutes ago

  • Time of India

Tech could help process Census data within 9 months; mobile apps to be used for count

NEW DELHI: Final population data from Census 2027 may be available as early as the end of 2027, thanks to the 'digital' mode being introduced for capturing and processing datasets in the upcoming exercise. Tired of too many ads? go ad free now Sources in the govt indicated that unlike Census 2011 when it took almost a couple of years for the final population data to be published at the national, state, district and taluk levels, complete with the gender-wise break-up, govt estimates that the time lag between completion of Census in early March 2027 and release of final population data could be as little as nine months. Govt had recently announced March 1, 2027, as the new reference date for the upcoming Census. Though due to start in 2020, the Covid pandemic forced the govt to put the decadal exercise on hold. Census enumerators to use app to collect data Census 2027 will be held in two phases - the house-listing phase in 2026, followed by population enumeration phase in Feb 2027. For the first time, Census data will be collected digitally, using mobile phone apps in 16 languages (Hindi, English and 14 regional languages). These apps are designed to be simple and user-friendly for both the enumerators and citizens, since the latter will also have the option to self-enumerate, the sources said. Enumerators will no longer have to carry bulky paper schedules to the field. With tech use, data to be ready instantly The Census schedules will contain mostly pre-coded responses. On the mobile apps, various options would be available from the dropdown menu. The apps provide a fetching facility to go to a pre-filled Census house record and permit editing the same. The applications will reduce the burden of preparing abstracts, summaries and duplication of other associated work. Tired of too many ads? go ad free now With the help of mobile apps and intelligent character recognition (ICR) data processing mostly used to organise unstructured data, the entire data will be instantly ready for processing without extra logistics of schedules. For the first time, a separate code directory will be provided for enabling easy data collection in respect of several questions asked in the second phase of Census (population enumeration). For questions involving descriptive/non-numeric entries, a separate code directory containing possible responses and codes for each possible answer has been prepared. In tune with digital census, a census management and monitoring system (CMMS) portal has been developed by the Office of RGI for smooth conduct, management and monitoring of the exercise.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into the world of global news and events? Download our app today from your preferred app store and start exploring.
app-storeplay-store