Up Close with Carlyle: The Right Side of Dislocation
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Investors are seeing periods of market dislocation with increasing frequency. While private credit investors in 2023 continue to focus on default rates, recovery rates, and the future of private credit loans being originated and managed in the marketplace, Akhil Bansal, Carlyle’s Head of Credit Strategic Solutions, makes the case that the right side of the balance sheet is just as important.
“A lot of people are focused on the asset side of the private credit balance sheet,” explains Bansal. “Though I’m worried about that, what I’m more focused on is actually the right side of the private credit balance sheet.”
Using the recent banking crisis as an example, Bansal explains how high leverage and mismatched asset and liability management may lead to catastrophic outcomes.
Private credit typically means a spread lending investment. This is because the product, fund, or vehicle will include private credit assets that are being levered by some portfolio leverage, generally to an extent that seeks to deliver a high enough return that may potentially make the equity attractive and compensate for the illiquidity of the assets.
This means investors are not only taking the risk of the assets and whether there will be defaults and recoveries, but also the risk of the liabilities. We at Carlyle believe it’s important to focus on the right side of the private equity balance sheet and understand both sides of the private credit return equation.
Part of Carlyle’s Global Credit business, the Credit Strategic Solutions platform invests in private credit, structured financings backed by portfolios of assets, and investments.