The State of Global Credit
In the last decade, the continued retrenchment of traditional banks as a source for capital coupled with market dislocations brought on by COVID-19 have presented attractive new opportunities to deploy lending capital. Today, Carlyle Global Credit manages over $60 billion in assets across the risk-return spectrum, leveraging strategies including liquid, illiquid, and real assets credit to find value in today’s evolving market.
Here we provide an overview of our Head of Global Credit Mark Jenkins’ perspective on the current state of the global private credit markets, with his key observations summarized in three key themes.
Private Credit Has Historically Delivered Strong Performance
Private credit has been a consistent performer during and between the greatest economic downturns of our generation. Over a 13-year period of continued downward movement in interest rates, the asset class has produced stable yields and unlevered returns in the high single digits, outperforming public market alternatives by producing current yields in excess of both high yield and bank syndicated loans.
Private credit evolved from an emerging trend in the wake of the 2008 global financial crisis (GFC) to a permanent asset class of over one trillion dollars today. The industry passed a major stress test by navigating the market shockwaves brought on by COVID-19 with minimal volatility to investment outcomes, demonstrating both the resiliency of the asset class on its own and its benefits as a portfolio diversifier for institutional investors.
Despite fast-changing dynamics in the current market, as well as improving interest coverage rates for corporate borrowers over the past 12 months, we believe private credit provides a greater margin of safety for credit investments.
The Pandemic Accelerated Market Movements
The pandemic has greatly accelerated the pace of change in many markets, including private credit. The retreat of traditional banks from leveraged lending activities, which began over a decade ago after the GFC, is among the trends that sped up significantly during this period. In our view, this created a lending void that global investment firms are moving to fill and provide a stable and flexible capital base for borrowers in the process.
With the early stages of the pandemic as recent evidence, we believe that the trend of shortening market dislocations is likely here to stay. Looking back, while markets took almost 18 months to stabilize during the GFC, re-stabilization was complete in under two months of dislocation caused by the pandemic.
More than ever before, we feel that investors need to move quickly to seize new opportunities. For example, to keep pace with the rapid rate of change in the market, our Global Credit team has leveraged the efficiency of our global platform to accelerate our underwriting process while maintaining a disciplined diligence approach to underwrite new investments in compressed timeframes.
Asset Selection is Key in Today’s Market
In our view, selecting high-quality assets is paramount in today’s market. A private credit investor needs to apply its knowledge, network, and sector expertise to support its underwriting and origination efforts. The ability to seize attractive investment opportunities has become more difficult due to shortened windows for taking advantage of volatility. Notwithstanding the accelerated timeline, investors still need to deploy capital responsibly and effectively. We believe investors with experience navigating various investment cycles who have size, scale, and a global footprint and an integrated platform will be best positioned to construct high-quality, diverse portfolios.
At Carlyle, we use our market knowledge and insights from our more than 30 years of investment experience to navigate the current environment while recognizing the importance of innovating to maintain a focus on the future. Whether further integrating ESG data into underwriting, adopting artificial intelligence to facilitate our investment processes, or launching new emerging strategies such as Real Estate Credit, we are committed to continuously adapting to an ever-evolving investment environment as we aim to deliver better outcomes for both our borrowers and investors.
Read more about our Global Credit platform
This presentation (“Presentation”) prepared by Carlyle Global Credit Investment Management L.L.C. (together with its affiliates, “Carlyle”), is provided for information purposes only and is not an offer to sell or solicitation of an offer to buy interests in any fund or investment program sponsored by Carlyle. Any offer or solicitation to buy limited partnership interests in any fund or investment account sponsored by Carlyle (“Fund”) is made only through a confidential private placement memorandum.
No reliance on forward-looking statements. Certain statements contained in this Presentation are based on current expectations, estimates, projections, opinions, and/or beliefs constitute “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “target,” or “believe” or comparable terminology. No representation or warranty is made with respect to such statements and future events may differ materially from those reflected or contemplated in such statements. As a result, investors should not rely on such forward-looking statements in making their investment decisions.