Sixth Street Co-CIO Sees ‘Complacency' in Private Debt

Mint

24-05-2025

(Bloomberg) -- Sixth Street Partners Co-Chief Investment Officer Josh Easterly warned shifting fundamentals within credit markets present a risk that many investors and money managers are overlooking.
'Private credit markets are relatively complacent,' Easterly said in a Bloomberg Television interview Tuesday, attributing the problem to a mismatch between capital pouring into the sector and valuable opportunities to deploy it.
'Spreads aren't moving as much as they should,' he said.
Investors flooding into private debt and credit overall are underestimating the impact of both interest rate and credit spread risk, according to Easterly, who is also co-president of the firm's direct lending platform, Sixth Street Specialty Lending Inc.
'Today's yields are not tomorrow's yields,' he said, adding that as rates are presumably cut in the future, floating-rate credit will return less.
Plus, 'we're in an environment of lower growth, which is bad for all investors,' he said. 'Credit is honestly really tricky right now.'
Easterly also said Tuesday that Sixth Street sees opportunity in providing rescue debt financing to stressed businesses as growth slows and rates remain higher for longer, but it has to be a little 'complex' to be worth it.
'In regular-way sponsor finance, we don't see value there at the moment,' he said. 'There is a great opportunity on the more complex side.'
Easterly has previously emphasized how Sixth Street's direct lending fund is finding opportunities to structure bespoke financings directly to companies.
On a May 1 call discussing first-quarter earnings for the direct lending platform, he said that 84% of its new fundings during that period were originated outside the sponsor channel. He cited the fund's largest first-quarter investment, made to Bourque Logistics, as one example.
Last month, the co-CIO said in a letter to stakeholders that Sixth Street Partners anticipates a world of lower growth and return on capital, given higher rates, elevated volatility and increased risk premiums.
'In the long arc of the economy, we consider the current upheaval to global trade as more significant than the Covid stimulus and even the global financial crisis,' he wrote, describing that volatility as possibly 'the most significant event' to impact the economy long-term.
(Updates to correct company name in 10th paragraph.)
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