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Alternative Market Briefing

IMF warns of 'fragilities' in rapidly growing $2.1tn private credit market

Tuesday, April 09, 2024

Laxman Pai, Opalesque Asia:

The International Monetary Fund (IMF) has raised concerns about the rapidly expanding private credit market, now valued at $2.1 trillion.

"The private credit market, in which specialized non-bank financial institutions such as investment funds lend to corporate borrowers, topped $2.1 trillion globally last year in assets and committed capital," said a statement from the financial agency of the United Nations.

The fast-growth asset class could "heighten financial vulnerabilities given its limited oversight," according to a blog post published on April 8 and co-authored by Charles Cohen, an adviser in the IMF's monetary and capital markets department; Caio Ferreira and Nobuyasu Sugimoto, deputy division chiefs in the financial supervision and regulation division of the monetary and capital markets department; and Fabio M. Natalucci, a deputy director in the monetary and capital markets department.

About three-quarters of this was in the United States, where its market share is nearing that of syndicated loans and high-yield bonds, it said.

This increased popularity has pushed increased competition from banks for large transactions, putting pressure on private credit recipients to deploy capital, which the IMF warned was "leading to weaker underwriting standards and looser loan covenants".

These companies relying on private credit tend to be smaller and carry more debt, making them more vulnerable to rising interest rates and economi......................

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