2024: A Credit Vintage to Remember?

In 2024, we think the conditions are ripe among the most attractive new vintages and opportunities in some time across the credit spectrum, including private and publicly traded credit. Lenders should continue to benefit from relatively scarce capital conditions to reach high-quality borrowers on attractive terms. Asset buyers, on the other hand, are likely to engage in more transactions as valuations come down, and the transactions are likely to be less reliant on leverage. It’s also important to remember that not all private debt is corporate. Asset-based finance offers important, diversifying exposure to non-corporate cash flows, and both the asset class and the opportunities it offers are growing as banks continue to pull back on collateral-based lending.

However, there is also fear in the market. This largely concerns existing portfolios, and we believe it is in some ways legitimate. We expect further deterioration in corporate fundamentals as businesses continue to adjust to a higher-for-longer interest rate and inflation environment. However, we do not foresee a collapse or a sweep of defaults in either public or private credit markets, nor do we see the trend toward financing in private markets completely reversing as syndicated markets thaw. Private credit has a place in the market now, and it will continue to. As we have said before, we believe public and private credit markets are likely to coexist, rather than supplant one another. We think there will be a strong bifurcation and increasing dispersion between lenders who balanced risk in the good times by lending to high-quality, larger companies with resilient business models and capital structures and those who did the opposite.

Fears about deteriorating fundamentals are also a major issue for public credit markets, but here again, we see worry overshadowing a view of the available opportunity. As conviction on the future path of interest rates builds and inflation wanes, duration is starting to become more interesting again. We are starting to shift our allocation toward high yield bonds, an asset class that has derisked in important ways over the last decade and may offer different opportunities than many investors expect.