Does a slowing economy increase the risk of loan defaults in private debt?

Well-run private debt funds use rigorous scenario testing and real-time monitoring to mitigate risks. Historical net write-offs by banks peaked at just 0.68% during the GFC and were 0.04% in September 2024, demonstrating strong resilience across economic cycles.

Does a loan default always result in a credit loss?

No. Private debt investors are protected by their seniority in the capital structure. Senior debt holders get repaid first, before subordinated debt, preferred equity, and common shareholders. Covenants and controls act as early warning signals allowing lenders to engage with borrowers to mitigate financial loss.

Are all private debt managers the same?

No. Private debt managers differ significantly in scale, credit skills, and experience. Quality managers need sizable assets under management, bank-level credit skills, extensive networks, and the ability to directly originate and diversify loans across borrowers to achieve optimal outcomes.

Does commercial real estate debt put capital at risk in a property downturn?

Property owners face greater risk than lenders. With typical loan-to-value ratios of 60%, owners' equity acts as a buffer. Even if property values fall significantly, lenders can compel borrowers to restore their position or pursue asset sales to maximize recovery without necessarily incurring losses.

Are non-bank lenders lenders of last resort?

No. Competent private debt managers lend to quality companies and often compete with banks or work alongside them in lending syndicates. Post-GFC regulations requiring banks to hold more capital have created financing gaps that private debt fills for established companies with sound fundamentals.

Private debt insights with Andrew Lockhart

Andrew Lockhart, Managing Partner from Metrics Credit Partners shares insights on private debt with Peter White from The Inside Network.

What is private debt and why is it an attractive investment? [00:00:52]

Andrew Lockhart provides insight into the private debt market in Australia and describes why the asset class is an attractive alternative during all market conditions.

‍How has private debt performed in past inflationary environments? [00:01:08]

Inflation is a growing concern for investors. In this interview, Andrew Lockhart explains how private debt can continue to deliver investors with attractive returns despite inflationary pressure.

What level of returns can investors expect from the private debt sector? [00:02:33]

Andrew Lockhart describes the role of private debt in an investor portfolio and details how the asset class seeks to be both an alternative to traditional fixed income products, as well as a high-yield alternative to equity-market, income-focussed products.

What benefits can private debt provide a balanced portfolio? [00:01:45]

In this interview, Andrew Lockhart discusses the attractiveness of private debt and describes some of the unique benefits that the asset class offers a traditional balanced portfolio.

How can private debt protect investor capital? [00:01:53]

Andrew Lockhart describes the ways a private debt non-bank lender seeks to control risk to offer capital preservation for investors.

How mature is the private debt asset class? [00:02:10]

In this interview, Andrew Lockhart reflects on the historic growth the private debt market and describes why investors should consider the asset class when making their fixed income allocations.

The Inside Adviser | July 2022 |

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