With private market assets having tripled since 2013 and projected to reach $20 trillion by 2030, traditional and retail investors are increasingly turning to these investments.
As private credit and other private market strategies expand, how can strong attention continue to draw investment while also avoiding systemic risks?
Private credit’s rapid rise reflects a post–global financial crisis reordering of lending. As banks retrenched under tighter regulation, private credit “stepped in” with faster, more bespoke financing, then expanded on strong demand for yield, insurer balance-sheet fit, and product innovation across direct lending, mezzanine and asset-backed finance. Panelists stressed that “there’s no such thing almost as a private credit market” given its many subsegments, which can add resilience through diversification.
Recent headlines—especially the First Brands collapse—highlighted weak disclosure and fraud risk in pockets of the market. Still, S&P Global characterized current stress as manageable: private-market default rates are “around 5%…a little elevated,” not bubble-like. The bigger question is pricing discipline: are investors “really getting paid for the risk” as spreads tighten and covenants loosen when capital floods in.
Institutional investors emphasized fundamentals and transparency: “know what you own,” track cash generation, and demand adequate information or “we’ll probably pass.” Consolidation toward large managers and growing demand for credit ratings may improve standards. Europe and multi-region strategies are gaining share for diversification and alpha, while political “affordability” priorities could create sector winners and losers. Ultimately, “capital follows returns.”
Hello and good morning everyone. Thank you for those who are joining in the room and also on the live stream. My name is Marine Kahn. I write about economics for The Times of London, and I'm delighted you're all able to join us this morning for a start of a busy Davos week to talk about private credit and the private credit markets. This is a topic which I will admit that if I was here at the forum last year, I don't think we even had a session on private credit. And if there was one, I probably wouldn't have been there. So when there is a journalist getting interested in this part of the world, then maybe, maybe, you know that it's become a bit more interesting, maybe too interesting for people who are practitioners in the sector. But I mean, we're all here to talk about, well, the title is The Resilience of the sector. So we're going to be looking back at what happened in 2025 and also forward into 26, and where we are at the state of the market. The private credit market has ballooned over the last decade. Assets in the sector are projected to reach about $30 trillion by the end of the decade. One of the reasons that journalists have become a bit more interested is because of some of the events that we saw happen last year, most notably with First Brands and Tricolore. Those are incidents that we're going to be talking about. I was in Washington when, in October, when Jamie Dimon made his remark about the cockroaches, which is which is quoted in every single story that any journalist now writes about the private credit market, the fact that there might be more cockroaches to be uncovered. Let's see, we're still a couple of months on after those remarks, and I think it will be great to get the thoughts of our panelists, on Jamie Dimon's remarks, but also where they see, the state of the market going into the year. I'm delighted to have a fantastic panel who's going to be talking about about the resilience of the sector. I will introduce everyone, in no particular order, but I'll start from my, from the furthest away from me, we have Steven Tannenbaum, whose founder, managing partner and chief investment officer at Goltry Asset Management. Next to Steven, we have Joe Taylor, who's president and chief executive officer of the Ontario Teachers Pension Plan in Canada. Next to Joe, we have Martina, who's president and chief executive officer at S&P global. And next to me we have Christophe de Visser, who's worldwide managing partner at Bain and Company, not capital. I got it correct. Maybe we can just start with actually just where we are right now and how we got here. Christophe, let me start with you. I mean, for for for for those of us who are starting to understand and think about the private credit market and where it's come from, where has it come from, how have we got to where we are in 2026? And then maybe just give us sort of the lay of the land as we kick off the year about where you think we might be going?
Yeah, I think a lot of attention is actually on the recent dynamics, but we like to take a longer term view of what happened over the last ten, 15 years, because ultimately, the growth of the private credit market started after the global financial crisis. It really took up. It existed beforehand, but due to changes in the regulation and the actually uneconomic new regulation that existed for the banks to participate in certain parts of the private credit market, private credit of the credit market, private credit stepped in, private credit stepped in, and direct lending and in other credit solutions to the industry because of the bank stepping out. And that actually was the start of the core driver of the growth. And what we've seen over the last 15 years is an industry that has been growing, for, you know, pretty much every single year, double digit. The direct lending part has actually been growing 20% per year since the global financial crisis. And it started partially driven by the regulation. But then you could see that there was a whole series of drivers that accelerated that growth. The first one is interest rates were low. People were looking for yields. Insurers liked, cash returning longer dated assets. And it was actually attractive for them on their balance sheets. We've seen an incredible inflow also from high net worth individuals, retail health that started to invest in private equity and private credit. If you look at it from the borrower side, they actually like, because direct lending with private credit is often an easy solution. It goes faster, you don't have to go through the syndication, etc.. And then there was quite a bit of innovation because you talk about 30, 35 trillion market, but there's so many subcomponents that exist now in the private credit market that go from the direct lending to the mezzanine, asset backed financing, etc.. And so even if you talk about, private credit, there's no such thing almost as a private credit market. It has so many different components that we can talk about that, because I think it's one of the drivers why this market is also more resilient. And so you look into that innovation, regulation and supply and demand drivers that actually have driven an incredibly attractive market over the last decade.
So we have a supply and demand element and a regulatory environment, which is sort of perfect constellation.
Combined with the innovation.
Of how we got here. Martina, tell us about, you know, I think often when we're talking about a sector which for the neophyte is quite Byzantine, quite complicated, and often we use terms like high yield and reasonably high risk. Is this how you see at S&P global that we're still dealing with a universe of lenders and borrowers that kind of exist outside the more sort of conventional public markets?
It's a great question, and I would maybe echo some of the thoughts that that Christoph mentioned as well. So, we would see that the asset class itself has matured quite, quite a bit. So, you know, from the sort of early days, if you like, of really filling that gap with small and mid-sized companies all the way to very large investment grade. And it is now truly multi-asset class direct lending, asset backed finance. We've also seen a very large uptick in interest with digital infrastructure and data centers, for example. And so the asset class itself has grown. And, I think I like this point about, you know, is there really a private credit market? There is, but it is a an interesting complement to the public markets. And one of the points that we've been paying attention to, which is quite interesting, is the movement back and forth between public and private. And, and this sort of gets to the point of your question, which is it's not companies that sit outside the public sphere, it it really is companies who will take advantage depending on their objectives as an issuer, whether it's, you know, timeline, rates, certainty, etc., to tap the private markets or the public markets. And so in 2025, almost two x the volume of of issuers refinanced from private to public, for example, than those who refinanced from public to private.
Why would you do it that way round?
So there are all kinds of things. It's not necessarily I mean, you know, in one instance when we saw spreads tightening dramatically over the last several years, it was really to take advantage of of the really tight spreads. It's it's really for many different things including, you know, is it certainty, is it timing. Is it, you know, how long you want to be, you know, working with a specific sponsor, for example. And so it can be many things. And I think issuers we're seeing now are getting quite sophisticated around it. Maybe the only other point that I would make, that hasn't been covered so far is the regionalization and regional growth. So the US, as many of you know, has dominated over several years. But in 2025, the US was actually just under 30% of fundraising. Europe. And multi-region strategies were actually more than 70% of the fundraising. We see that as a continuing trend, both for diversification outside the US, but also for for alpha. And so just a couple of the observations, kind of like how we got to here if you like.
Thank you Joe. How much does the private credit market make up of what you do at the pension plan?
Our portfolio is around 35 billion, Canadian. We're talking Canadian dollars, so we'll have to do your own currency. Translation. Apologies. You know, about of about sort of 275 to 80 billion that we, we have in the fund. So it's probably worth maybe just a slight digression, you know, for a pension fund. Why would you want to have credit, I suppose could be one question. And for us, it's actually a way of getting, sort of fairly stable risk adjusted returns where the challenge, if anything, is how long you have it invested, because it's quite often refinanced more so than equity in, in our book. So it's a little bit more liquid. But it's also you have to work harder to keep that portfolio fed. Our appetite for credit is in some, some degree relative to our appetite for equity in private companies. So if we look at business and say, don't fancy the equity part so much, we might move into the credit opportunity as an alternative. But overall we got our own teams. So we very much try to, as we do in equities, do our own due diligence on the business. Back to the cockroaches question. And you know, really the mantra is know what you own, you know, so we, we don't really have a, a target number. If we like an opportunity to invest, we'll take it on. I think the geographic question is really interesting, one, in that I think there's to us seemingly a bit more demand now coming out of Europe for credit in some of the countries, which historically didn't do quite as much as that in an organized fashion. So that's things potentially an opportunity for international investors to look there. I think the other one is, you know, really figuring out what is the rate of return you need to make it make sense in your portfolio mix overall. So for us, you know, we have very long term liabilities. We want to make sure that on an every year basis, we're making a return of four ish percent above inflation. And credit is quite attractive in that if we can get low teens yields, that's actually quite good on a risk return basis within our overall portfolio.
In a world where obviously we have lower inflation and lower borrowing costs in Europe, and also now heading that way in the US, you're still confident about the low teens. That's a that's a sort of a comfortable area of returns. And if it dips into single digits, well, you know, do you become a bit more squeamish about just being involved at all?
It's really where it ranks in the stack of risk. So, we do higher risk opportunities and we're happy to do that. So I think, I think credit really spans anywhere between about sort of eight, 9% and low teens at the moment. So, you know, you can have a bit a bit of both. I would say that there's nothing wrong in being in the senior slice of a credit opportunity as well, particularly if you look at the returns we need to make. Overall, that actually sits quite well still for us beneath our equity activities. So, you know, we're not trying to really push the risk envelope with credit to shoot the lights out. That's not really our approach to how we see it in terms of a relative positioning within our portfolio.
Stephen, do you want to give us your outlook and maybe some comments on what you might have heard as well?
Sure. I guess first, with what was said, on just the growth of the asset class, asset classes grow because they work. So when you're looking at, returns of 9 to 10%, which was what happened pretty much the first few years after, the GFC, it worked and there was a lot of good innovation. And so surprise, surprise, it brought in a lot of capital and a lot of the innovation that that initially occurred. For instance, let's just say technology, which is a big subsector of private credit. Whether it was revenue loans opposed to EBITDA loans became more mainstream in the syndicated market. You also, there was an arbitrage between the rating and the capital raise. And so, for instance, a venture capital firm or early stage investors might give us. A big valuation of three, four, 5 billion. And if they're raising money and they need capital, they may want to take 3 to 500 million in private credit and raise 3 to 500 million in debt if it has very little revenue and no cash flow. Very hard to do that regular way. Private credit market was very open to that. And broadly it worked and you got paid more. And in general, when these types of deals work and the revenue comes and the EBITDA comes, the covenants get relaxed and there are more buyers and it goes to the to the public markets. In terms of so where are we now? It's we're in the part of the market just taking a step back kind of mid-cycle. If you look at expectations broadly, is for growth this year, being decent growth in next year, being decent growth credit tends to not make its coupon or barely make its coupon. So you're in the part of the cycle where credit is more stressed or, or or it's more of a hand-to-hand combat, more bespoke. And, you're going to need to try harder and be more resourceful to get better returns.
Yeah. So you in the sort of life cycle you're you think we're mid-cycle and events last.
Actually of the economic cycle private credit. I don't.
And that's the US economy. Sorry.
Or it's I'd say the US economy. But broadly if you were to look at, you know, some of the growth expectations, but you would see that every year at Davos in January.
So yeah. Fair enough. Yeah. Yeah. I mean, in terms of what happened last year, who thinks it's a bit of a tipping point. And maybe if the tide has come in a little bit, it's quite helpful for the maturation of the market for the dynamics that Stephen was talking about, that lots of people rushed in. And then maybe now we we get to a point where, you know, maybe if the diligence standards were dropping that people becoming a bit more, they're applying more scrutiny, which should have been happening anyway.
So so when you open up the comment, are your, remarks on, first brands? Yeah. And First Brands was a fraud. And then there was a debtor in possession of goes bankrupt the company and then they need capital to continue to operate. And the fraud people didn't appreciate how, broad it was and the amount of capital needed. So it's unusual when you have a debtor in possession financing, which historically has been a good neighborhood to be in, and it was a terrible investment. The dip went from, 100 cents to around $0.20 in about three months. So as a result and it was several billion dollars, people, more concerned about that space. And there's been a sell off in that space. You take something like Saks, which just did a debtor in possession financing, which priced around 20%. So people very concerned was almost like the mirror image. So I think that market's backed up. It reminds me of what happened with junior capital of banks after Credit Suisse was bought by UBS. And it turned to be very quickly, went from maybe fully priced to very underpriced. And I think that's happening at that part of the market, the debtor in possession, the super senior part of the LM structures also, I think are attractive as a result of what happened with first brands. And then there goes to the question, well, are there cockroaches there. And you're always are going to see, frauds. The issue is what percentage of frauds and what's the knock on effect on leverage. And I am not terribly concerned. You're going to see, a pervasive amount of first brand type of investments, but I'm sure that they'll continue. And if you look at the private credit market, it's somewhat permissive given that there are few holders, so they're less eyes on it. You also tend to have many situations that don't have top for accountants.
Is anyone more worried about you know, that maybe this isn't just idiosyncratic and concentrated in a certain part of the market, but there might be some more systemic issues. I mean, you mentioned that there have been less eyes on it. One of the eyes that it's attracting is regulatory eyes. So we hear much more from conventional financial regulators that what they're worried about is the is the link between private credit and and banks. And that's where they have to step in because they have to care about the banking system. I mean, there is much more heat around or noise around from a regulatory side. How does how do you see it? Martina.
Yeah, I look I would perhaps I think we have some of the same points of view as, as Steve mentioned. Look, you take a step back and look at the market and all the parts of the market, obviously identifying and isolating idiosyncratic circumstances such as, what, what Steve described, the default rate that we're seeing right now is, is around 5%. And, we cover thousands of credits using the same methodology for private markets as we do for public markets. And from our perspective, 5% is a little elevated, but it is not at a rate where we would see, you know, we wouldn't necessarily call it a bubble, by any stretch. A few other points that I would make, and you talked a little bit about structures and things like that. You know, our, our teams are paying very close attention to the interconnectedness in the system. And, and so we very frequently report out on that. We're also looking at things like picks, for example, or payment in kind, which depending on whether it is done via an amendment, for example, could be a sign of of potential stress. But the truth of it is, the some of the fundamental factors that impact the public markets are going to be the ones that will actually really be the things impacting the private markets. So, for example, you know, our default rates across public and private, we've seen stress in media. We've seen stress in in leisure hotels, restaurants. We've seen stress in autos from tariffs, for example. And so those are the other things that we'll be paying attention to. As we as we think about the overall risk in the sector and of course, our, our credit teams published very frequently on this against our methodologies. Again, I think I think what's really critical for the perspective of our teams in the rating agency is, is the use of a consistent methodology to assess risk between the public markets and the private markets.
If I could just add a comment. I mean, I don't think the failure rates ticked up so alarmingly across the sector that you would say there's obvious signs of distress, yet you can get a few examples where it's been well, well commented on. I think the more interesting question is, are you really getting paid for the risk? So as rates tighten up, you know, then you get more into the it might be an interesting proposition, but does it actually suit your book in terms of really getting fully, reflected in the reward you make on the risk you're taking? And then I think it's really a question of your level of sophistication, how you actually try to assess that either independently or through the, the issuer. So there's a huge span of approach to that. So it's quite hard to generalize.
Just on you mentioned we'll get to Steven, but you mentioned, you know, you guys have to do a lot of diligence. Maybe the auditors in the section sector are not as not as much veracity as in public markets. One of the couple of variables of the categories that you guys, Ontario, have to say, this is, you know, this is something that we like or we don't like in broad sort of.
The very easy first question is what information you've been given. So if you're not getting given much information, you should probably know that it probably doesn't meet your normal standard of diligence. There are other very easy questions, which is, you know, tracking the cash. Is it actually making cash, given how they're arguing the revenues are building? I mean, everyone probably has a slightly different style in terms of what they think are the key metrics. But, you know, I think for us, we we tend to be a little less driven by who else is investing in the business and more by what do we think in terms of the sector it operates in and the quality of the company? And if we're not being offered enough information to be able to satisfy ourselves of that, then we'll probably pass. Steve.
Sure. We I tend to be involved with companies with an enterprise value of about $1 billion. So it's a little higher part of the private credit market. So, but so in terms of, tracking and information tends to be better than some of the smaller companies, but certainly the red flags when things don't add up. And, you know, we always ask if a company is worth several billion dollars, why are they not using a name? Accounting firm? What's the record of management and and why? And what are the incentives in terms of just the way setting up the equation before about the private credit universe, if you have a 5% default rate with, let's just say, a 6,070% severity. So that means you basically lose, 70% of your, of your money on a problem situation. Then you have to have spreads of approximately 600 to justify a 5% default rate. So you have to kind of be very, focused on what type of return you're getting and what's the probability of default. And if the probability defaults like I think it's going to work, I hope it's going to work. Well you can't you got to get a lot more compensation than no. I'd be really surprised if this didn't work. So that also comes into and when you have a more bullish environment like we have now in credit, where spreads are broadly, tight to historical norms, the last 25, 35 years, you tend to have to be very deliberate in the private market because it spreads aren't justifying the risk.
How do we analyze the the political environment in the US and the regulatory? I think comments made by Scott Bessen, who said he sees the private credit market as a as a development because we basically overregulated the banks after the GFC. So he clearly sees that maybe, you know, he's a Wall Street guy. So he thinks about, you know, what banks are having to undergo. Is there anything that anyone has heard from the administration that could be a game changer for how you think about private credit in the US? Steve?
Well, he certainly being more permissive in a bunch of ways, whether it's for consumer protection, whether it's and it comes it ebbs and flows, credit cards on affordability, which is, I think, going to be a dominant theme in tomorrow's speech.
And do you have you seen it, by.
The way?
What's that? The speech, if you if you got any have you got any exclusives. I'm just I don't think you have seen the speech but.
Sure. Can't talk about that.
No you can't.
But, affordability. He said he's going to talk about affordability. That's a theme and how it goes into banking. How can you reduce what consumers pay now on the credit card caps? On the surface, it looks like the subprime holders are going to be the losers. But my guess is that that's where it ends up. So there's going to be whether it's energy prices and what energy is a big part of the of the private credit market, particularly when there are certain. Yeah, it's a big part, part of the private credit market. And then you look at, housing, another also big part of the credit market. And so, what their policies to, to improve affordability and then what the impact is on profits if you're trying to improve the velocity of housing, then if you're a supplier to housing, you're going to be a beneficiary. So they're going to be winners and losers. As a result of this affordability theme, the affordability theme is going to be a bipartisan issue in the US. And you've seen it already on both sides.
Does does the administration's kind of permissibility actually run counter to what we were talking about, which is actually the sector needs to tighten up a little bit on its own standards. How does is there an interaction between the political environment or actually are people in the market still going to be, you know, whatever the administration says, there's a bit more of a heightened sense of of standards that need to be applied. Does it?
I think it's much more supply and demand driven, if I'm being honest. You know, when everybody thinks there's money to be made, money comes into the market. Things tend to ease up in terms of covenants, you know, your controls that you have. I think that's much more of a signal to me in terms of the environment you operate within in credit than regulation or sort of top down implications. I mean, some good comments made about, the what the president said so far in terms of what he's thinking is a long way to go before that really hits the road in terms of activity. And look, you know, I think there's always the, the opportunity to pause. You don't have to keep on, providing capital if you think that actually things are going against you. You know, I think as you probably have people who, feel it's a good market to enter and very enthusiastic to try out some things. That's probably the people who might be a little bit more at risk than people who've been operating there for, for, for a long period of time with established relationships and establish ways of actually sort of figuring out where it fits into your building out your portfolio. I mean, the other one, which I think always is an interesting question for me, is the mix of essentially ETF driven public funds and institutional capital going into the sector, because they're driven by very different motivations, I'd say.
Christoph, you mentioned the retail investor and the high net worth individual. Is this still, is this a global phenomenon or is it still regional to the US? We mentioned a little bit about Europe.
This is increasingly a global phenomenon because of course you have the the retail wealth sitting across the world. You know, increasingly in Asia, there's parts in Europe, of course, in the United States. I think, if we see particular events, sometimes we like to make the comparison between the private credit market and the private equity market, because there's always been events in the private equity market as well. And all of the themes that have been discussed have been played out there. People can pause. You know, there's always events that get exaggerated. There's always people that say, now it's the end of the private equity market. And then there's the, the, the innovation of the industry. And as well, increasingly, the consolidation of the industry that drives that the industry matures. If you see the alternative asset managers that investing in private credit. Now, the last three years, there's been an incredible consolidation towards the main players. And that also drives the maturity and the professionalism of the industry. And then you can start to see, okay, where is the bigger risk in which type of asset class, maybe more in certain parts of the asset backed finance versus the direct lending. And so you need to do your diligence. As was said, the honest liquidity planning, leverage ratios, the underlying industries, which is also a parallel where the private equity industry had to go through because you play at slightly more junior levels in the industry. But ultimately, we believe that an industry like the private credit, with all its subsegments, where the duration of the investor, you know, can you have duration matching and you have risk matching, it should be a safer environment to operate in. Because ultimately, if you think through the banking system, there's almost the ultimate mismatch on duration for short term deposits that you can get every single day versus the duration of credit. And that is what's driving a bigger risk. Now the banks are sitting at the more senior side. The private credit sits typically at a more junior side and has its better matching of duration versus risk. So we believe that actually an industry. And then I make I don't comment on the cross holding and the crossovers. An industry where you can have this matching of duration and risk on both sides is actually a safer place to play in for, for investors. And that's also why we think more consolidation around the big household names, more maturity, diligence, understanding of the industry and therefore also more interest from, you know, certain investor segments that understand that base. So from that point of view, yes, there's always going to be events, but we think it's it actually creates almost a safer environment. If that matching happens of duration and of risk.
I mean I would maybe just add I think that was very well said. Maybe just one, one, slight kind of clarification, at least from our perspective, around increased allocations to the asset class and the risk of, you know, if you have more money coming in, that standards will weaken. We actually have seen something quite different to that, which is, you know, as the as the class became more mainstream with allocators, you know, kind of post 2022, we actually had a number of sponsors and these would be, you know, the larger sponsors, more professionalized, but also, you know, accounting for the vast majority of the market actually come and say, look, our, you know, institutional investors and asset owners are essentially demanding, credit rating, because if they're going to allocate more, they want to be able to make sure that they can actually benchmark the risk against other exposures they have in their portfolios. And so, you know, I do think it's important to acknowledge that, you know, there's there is that, understanding of the risk, to your point around changes in, you know, it's if it's in the US, for example, around the, admission of, private markets portfolios and opportunities into forward and retail funds, I think that's where, you know, there's more education awareness and, you know, the types of opportunities for investment that are simple to understand, particularly for retail investors. And, you know, this is where, let's say index diversification becomes an opportunity or, you know, the need for more data, a granular level, that data transparency becomes really critical for, you know, family offices and others, maybe at the asset level or the deal level. And, you know, our view is, from from an S&P perspective, we aim to solve that transparency gap with, you know, with what we do across the spectrum. But that's that's I think, where there will be a real need for that education and understanding of, of the asset class. Because once you get out of the realm of sophisticated institutional investors, you have to make sure that, you know, investors understand the risk.
We had some figures, I think, for 25 that around 7 trillion was was of money was taken out of by private credit investors. But all of those redemptions, it seems, were met. So there was, you know, that money was withdrawn. Are we half glass empty or full on that in the sense that if they were met, that's probably a sign of confidence that people will probably be like, this is there wasn't any problems involved or the 7 trillion is a higher figure that makes people think that, well, perhaps something is is turning in the market. How do we read that, particular single data point, as my editors like to call it?
I think you have to ask why. I mean, some of that could have been geographical diversification. In, in terms of, you know, perhaps more non-U.S. exposure. So I don't think it's necessary to reflection of the asset class, but we keen to get your views.
I think the other thing I'd say is that the area we haven't talked about at all so far, which I think is still a pretty stable influence and driver of more demand in the sector, is the insurance industry, and they are very keen to actually acquire senior exposure to this type of asset class. And I think that's growing rather than abating. The problem with the single data point is, you know, it's hard to really read a lot into it, I would say. So it's probably a bit of both. Back to your question you posed, and I think the key point is it was just one, a one off rather than a continued run in terms of it.
Was a fourth quarter figure. Yeah.
So a couple of things, because the market's growing, the numbers will seem large. Credit for credit to have poor returns you need a poor economy. And so I think in the absolute, that you'll probably have more, more redemptions when there's concerns about the economy or concerns about transparency and pricing or the returns. I'm being told, really, the returns I'm getting, I think that's going to be that's going to be an issue. You see it already on the BDCs and the comments on the BDCs that are public, you know, are they marked correctly, transparency, etc.. That's why, broadly speaking, most of them trade at significant discounts at 10% or more. Or we're trading that a couple of weeks ago when I last checked. So, so, you know, that's, that's the on the, on the state of play in terms of of that number, the market's growing. And I think as long as the returns continue to give a premium to high yield, I think they'll be, you know, it'll be somewhat measured.
Maybe I'll give you time to I'll throw it out there. But is the US economy incredibly strong or actually is it incredibly weak. But I'll let that marinate because we'll go to to take some questions from the audience. We have a mic as well. So we have, yeah. The lady at the front, let us know who you are as well. Hello? Yeah, we can.
Hear you. Good morning. Thank you. My name is Analisa Malomo, and I am an investor, a private markets investor, and a board member. So a number of trends I'm seeing in my world, and I'd love to take you get your take on if we should be concerned about any of these trends or at least paying increased attention to these trends. So number one, private companies are staying private for longer. And that coupled with the need for distributions for LPs, means that you're thinking about innovative ways to get distributions to your LPs. That then lends itself to maybe credit markets, CVS and secondary strategies. You're seeing more private equity funds starting a launching private credit funds. And you might see that as a good thing, because if you're looking at the capital stack, if you know the company quite well, why not just invest in another part of the structure, perhaps, perhaps get paid more for taking in some junior, risk? The third then, will be, as you say, Joe, insurance companies increasingly are being owned or private credit funds taking stakes in those. I'm looking at all of these trends and thinking, should we be paying increased attention to them, or should we be increasingly concerned about some of these trends?
I'm sure. So probably the most frequent call that people in the private credit market make to sponsors are, on situations that are working. We want to help you monetize, and we know you need to get money out. That is the most frequent call and we make it. I'm sure Joe makes it. Everybody makes it. And so I think that's a good conversation. It provides flexibility. And there is a real issue about giving, money back. I would add that probably there's been an innovation the last few years that's been gaining momentum that I think is really interesting, one which is a convertible preferred, where you get a multiple of the IPO. So basically, I think that's going to be an interesting, option because it validates the for, for the sponsor potentially what the value is. And also this isn't a boilerplate transaction. If you're in order to make your returns, you really have to believe in the value that they believe in. So I think that's kind of an interesting part of the market that I expect to grow. So, that that was kind of my what I wanted to comment on. I know that you had several questions or several comments, in terms of private credit, or private equity, getting into private credit, I think it's all the, boundaries are merging and, or blurring, I should say. And I think that's natural. I think they're just becomes to, you know, do you have the infrastructure and also, you know, do you, do you have the infrastructure and scale? But I think it's natural and, you know, I think it's it's welcome if they, you know, if people give a serious effort for it.
Crystal, do you want to come in on the point about not just obviously, you mentioned the comparisons between private equity and private credit, but there is a massive interconnectedness. Is there a degree to which the private credit market can sort of ride on the coattails of private equity in terms of reputation and maturity of the market? And is that a sensible thing, or should there still be a bit more of a differentiation?
Yeah, I think it's a trend that we see clearly because there's a set of brand names that start to exist in the alternative asset classes, where money is flowing because of the confidence of the high net worth. And those brand names are also doing the consolidation with some of the insurance platforms. And so that is an intersection which drives more knowledge, more maturity, etc.. One of the trends that we are watching, is if you take a forward look on credit markets, we believe that coming out of a period of capital superabundance, you know, we see actually a churn in how capital will be more rational and rationalized, we think, in the future, because in a lot of the world, we're going to go from, from saver to spender societies, because we have demographics that are aging. And if a world is globalizing, you have less capital flows around the world from the exporters investing back and how to think about private credit strategies in the future. In a world where you go from superabundance to rationalization, and the strategies you will apply for, that is one of the elements that we consider for sure towards the back end of the loans, how is it going to be refinanced and what solutions is it, secondaries, etc. and that is a fundamental shift that's not going to play out in 1 or 2 years. That's a shift that's going to play out for the coming 5 to 10 years. But given the duration of some of those elements, we think it's worth to watch the churn that is happening from capital superabundance to a more rationalized.
I'm glad we got mention of the trade war, and it wouldn't be a Davos panel if we didn't,
Could I guess.
Sure. Joe, quickly. And then.
Just a quick answer to the specific question. I mean, I guess if you're an investor, the period where it's difficult was probably coming out of Covid. So 2020, not a lot happened. And then 2021, the market was very active in highly priced, optimistic businesses where I think if you were a regular investor in the 21 early 22 period, you got issues. Now, the interesting thing about credit is, is that an equity question or is that actually a credit question, because you could be in the loan to own credit part, where you would actually do quite well by actually businesses having to be recycled more into the debt structure. And I think what's reason it's worth mentioning that point is that that came at a time where there had been a long period of very predictable returns and very stable activity, so it felt like a big change. And I think everybody's trying to look at the sort of post 22 era and say, what have we got? And I think to some extent people are still figuring that out. But it's interesting how quickly the market bounces back and the lending starts to be to be introduced.
I was going to say in reaction to what Christoph said, if the asset class performs and my concern is going to get allocated. So the issue to me is more of the asset class performing than the rationalization of capital. And basically I've been doing this for 35 years and I've seen been a PM for 35 years, and I've seen that capital follows returns. So, if, a part of the sector is doing if one asset class is doing well, it'll go there. And if it stops doing well, it'll leave there. So that's so I think that I'm not concerned about, the health of the industry if the returns. Are there.
Any more questions? I thought I saw a hand, but maybe.
On another thing on the returns I'm right now compared to private equity, am I? Don't I strongly feel that it's not going to last. And probably private credit private equity should be higher in its in its form. But right now it's being close in terms of the return and it's had better liquidity. So when you have returns that are approximately the same, you know, give or take a couple hundred basis points with better liquidity, that's why, private equity sees it as an attractive alternative. The analysis is complimentary. So but I do feel as if, that the returns, that's if the returns can still be at a premium to what high yield has been. And looking close to historical averages of equities and perceived to be higher in the capital structure, that's an attractive place to be.
Maybe maybe we could just end with a with a sort of note to to the non-U.S. and particularly Europe, which was mentioned as a burgeoning area where we're seeing more are we seeing more supply and more demand, and in which kind of sectors and are the returns, you know, on parity with sort of averages that we're seeing, or are they slightly lower in Europe? I mean, it's generally, you know, we're here in Davos, you'll hear a lot about, you know, the the sort of shallower capital markets and how this needs to be a much bigger area for Europe to achieve more of its political goals. Could private credit actually fix some of these problems for European policymakers who can't seem to get it done from a top down level?
Well, I think there's from our perspective, I mean, there are a lot of, ways in which capital markets can develop, including developing the securitization market, for example, in Europe. But, private credit has been alive and well. It may have been a little bit more skewed towards SMEs. But as I said in my remarks earlier, we're seeing quite a lot of growth, into more of the areas that we've seen in the US. So, you know, is, is is Europe a, you know, a year or two behind, you know, perhaps you could characterize it that way. But there's no question that the diversification into Europe is not just a geographic diversification. It's also for alpha.
If you look at the regulatory arbitrage, where basically the cost of capital for a bank, is different than the cost of capital for private credit. And so, some simplistically, if banks sell off their first loss of a portfolio of assets, they get very good, regulatory, treatment. And it's also very attractive for, for investors. So that's been one area. And this has been going on for years. It's not new. And then returning capital from sponsors or allowing sponsors to return capital is a theme that's going to only Avalanche in Europe.
And if you look into public markets are poor in Europe versus the US. But if you look into private markets, private markets have actually performed decently well. If you look into private equity, private credit, there's not that much spread actually, because it's more difficult markets to engage in country based markets versus a more transparent US market. And therefore, if you look over the history, actually private markets in Europe have always outperformed public markets in Europe and have been at par often versus private markets in the US. And therefore there's a good attractiveness for people for diversification, to allocate their private investments across the regions. And that's something that we've seen over the years.
I think also, if you're looking to Europe specifically, I think the really interesting question is Germany, because actually it will it will sort of dominate some extent and lead within Europe. And there's been a history there of essentially more regional lending. And I think that there is a change that we can see happening there. And I think it will be really quite interesting to see where that goes.
Fantastic. I think we have just about run out of time. That was fascinating. Thank you so much for covering a breadth of topics. It is going to be a very interesting week, and hopefully some of the themes that we've been talking about will pop up again. So my final task is just to say thank you to Steve, Joe, Martina and Christoph and for you guys for being here. And I wish you a very good rest of the day. Thanks a lot.