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 key strength differentiates Metrics from its competitors? [00:00:41]

Andrew Lockhart reveals the attributes that differentiate Metrics Credit Partners from its competitors in the private debt market.

In inflationary times, does private debt become more attractive? [00:00:54]

Andrew Lockhart discusses how private debt can provide a hedge against inflation.

What benefits can private debt bring to a traditional balanced portfolio? [00:01:05]

In this interview, Andrew Lockhart describes why investors should consider the asset class when making their fixed income allocations.

Why do private debt managers tend to make better investors? [00:00:53]

Andrew Lockhart outlines how Metrics investment team manage credit risk.

The growth prospects of private debt vs equities [00:02:11]

In this interview, Andrew Lockhart discusses the different roles that private debt can play in a client portfolio including how it can take on an equity-like return profile.

Explain the non-correlation benefits of private debt [00:01:31]

In this interview, Andrew Lockhart describes how the asset classes’ low correlation with public markets can enable consistent risk-adjusted returns for investors.

How does the size and scale of a private debt manager benefit investors [00:01:34]

Andrew Lockhart details how a sizable private debt manager can deliver better outcomes for investors.

Are non-bank lenders at the riskier end of the private debt market [00:01:21]

In this interview, Andrew Lockhart explains how Metrics is not a lender-of-last-resort, but instead has invested substantially in its origination capability to ensure we have access to the best investment opportunities.

The Inside Adviser | March 2023

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