Private Debt News Weekly Issue #27: India Boom and the Retail Revolution
Partnerships Proliferate and Asset-Based Finance Takes Center Stage
This week’s Private Debt News Weekly examines key developments in the global private credit market. We cover India’s emerging role as a growth center, efforts by asset managers to introduce private credit products to retail investors, and ongoing debates about market valuations and regulatory oversight. The report also highlights notable deals and strategic moves by industry leaders, providing a comprehensive overview of current trends in private lending.
As always, let me know if you have any feedback or have areas you’d like explored in more detail.
India: The New Private Credit Frontier
India's private credit market is headed for its first $10 billion year
Unprecedented flurry of lending from local firms fueling competition with global giants
KKR & Co. and Oaktree Capital Management among the global players active in the market
Private credit investments in India soared to a record $6 billion in the first half of 2024, according to EY
Market growth driven by increased funding needs of local firms and retreat of traditional banks
BlackRock in talks with Mukesh Ambani's Jio Financial Services for private credit venture
Discussing a 50-50 joint venture to lend to businesses ranging from large companies to startups
Would be BlackRock's third venture with Ambani's firm after asset management and stock broking businesses
Jio Financial already runs a shadow bank offering home mortgages and loans against mutual fund investments
BlackRock's Maheshwar Nataraj appointed earlier this year to lead private credit business in India
Reserve Bank of India (RBI) Governor Shaktikanta Das sees need for more measures to grow corporate bond market
Das: Country will need to tap foreign capital and open up markets further as it develops
RBI urging shadow lenders to implement robust risk mitigation systems
Central bank tightened regulations late last year, slowing bank lending to non-bank financial institutions
Das emphasizes RBI is watching credit market "very closely" and ready to take action when necessary
Private credit seen as key to India's economic goals
Infrastructure funding a major opportunity for overseas capital
Traditional lenders constrained amid struggle to increase deposits
NIFTY 50 has gained about 28% over the past year, including dividends, attracting savers away from bank deposits
Celia Yan, BlackRock's head of APAC private credit, sees opportunities to lend to large enterprises and young entrepreneurs funding startups
Global Market Expansion and Projections
BlackRock projects global private debt market to double to $3.5 trillion by 2028
Current market size estimated at $1.7 trillion
Projection represents one of the most bullish calls on industry growth
Growth driven by expansion beyond traditional areas into sectors like auto loans and infrastructure debt
Family offices plan to boost private credit exposure, according to PGIM survey
Survey covered 250 institutional investors in the UK, Europe, and the Middle East
44% of respondents said they're likely to increase holdings of private credit
Private credit currently accounts for 11% of alternatives allocation among surveyed firms
42% likely to increase private real estate debt, 40% sustainable equity
Alternatives expected to take larger share of global asset market
Alternative assets grew 19% from 2020-2022, increasing market share to 16% as of 2022
Projected to maintain 16% share in 2027, up from 13% in 2020
Growth supported by lower markdowns than public equities and fixed income, as well as secular demand trends
Retail Investor Push and Product Innovation
Major asset managers racing to launch private credit ETFs and retail products
Apollo, BlackRock, Capital Group, KKR, and State Street among those developing offerings
Goal: Allow ordinary investors to buy into the $1.7 trillion market for private loans
Alternatives make up less than 3% of the roughly $150 trillion individuals have invested globally
KKR's Eric Mogelof predicts allocations could rise to 10% or greater in the future
State Street and Apollo file for innovative private credit ETF
ETF would invest in mix of public and private debt
Apollo commits to repurchase private debt daily to ensure liquidity
At least 80% of debt would have investment-grade ratings or be "of comparable quality"
Approach aims to make private debt liquid for regulatory purposes, crucial as SEC rules bar ETFs from holding more than 15% of illiquid assets
BondBloxx and Macquarie propose ETF focused on CLO bonds
Would act as proxies for private debt with benefit of easier trading
Virtus Investment Partners seeking approval for similar ETF
BondBloxx co-founder Tony Kelly argues CLO bonds offer comparable exposure with greater liquidity
Capital Group and KKR partner on new suite of products
Funds to mix public and private investments
Structure similar to Blackstone's "perpetual" real-estate fund, with limits on withdrawals
Approach aims to balance access for high-net-worth individuals with necessary liquidity controls
Market Challenges and Skepticism
Pimco warns private credit is overvalued as complacency spreads
Mohit Mittal, CIO for core strategies: "Fundamentals are deteriorating in more levered portions of the credit markets"
Current excess premium for less-liquid levered investments about 190 basis points on average
Pimco argues fair value should be "well north of 200 basis points" over public credit
In investment grade credit, private markets pay about a 50 basis point spread over public, half the 100 basis points Pimco deems fair
Mittal cites 40% of companies with fixed-charge coverage ratio less than one, struggling to cover interest expenses
Concerns over liquidity mismatch in proposed retail products
Aaron Filbeck, CAIA Association: "There is a mismatch in terms of the liquidity profile between private credit as an underlying asset and the daily redemption of an ETF"
Questions remain about valuation and market behavior during downturns
Morningstar report flags risk of portfolio illiquidity if Apollo fails to provide bids in State Street ETF proposal
Regulatory scrutiny increasing
IMF in April urged "a more intrusive supervisory and regulatory approach to private credit funds"
Federal appeals court in June struck down SEC efforts to increase private-fund manager disclosures
SEC spokesperson declined to comment on private-credit ETF proposals under review
RBI Governor Das warns of risks in private credit
"At a global level, I think private credit is increasingly posing certain risks and I think every central bank and regulator should be looking into it"
RBI watching credit market "very closely" and ready to take action when necessary
Concerns echo global regulatory sentiment on rapid growth of private credit market
Strategic Moves and Partnerships
Apollo Global Management's Olga Kosters exits to start new credit secondaries fund
Kosters previously co-managed Apollo's private credit secondaries effort
Credit-secondaries specialists buy up stakes in private credit funds, often at a discount
Market has boomed as institutional investors look to generate liquidity in the $1.7 trillion industry
Kosters' move highlights growing importance of secondary market in private credit
Apollo CEO Marc Rowan sees private and public markets converging
Predicts increased competition and liquidity will boost demand for private assets
Challenges idea that private markets are inherently riskier
Apollo projecting $10 billion of annual earnings across asset management and retirement businesses by 2029
Rowan argues for increased private market allocation in retirement funds, criticizing overexposure to public equities
Deal Highlights
JPMorgan plans risk transfer linked to $3 billion loan portfolio
Size of SRT providing protection is around $250 million
Part of growing trend in significant risk transfers
Global SRT issuance on pace to hit record high of $28-30 billion in 2024, up from $24 billion last year
SRTs enable banks to hold onto loan assets while offloading risk to investment firms
Root Capital launches distressed debt fund in Brazil
Aims to raise about 500 million reais ($91.3 million) from local Brazilian investors this year
Targeting at least $100 million more from offshore investors next year
Fund targets returns of 12% to 15% plus the interbank interest rate (currently around 11%)
Capitalizing on record-high bankruptcy filings in Brazil, with 1,480 filings through August, 72% more than same period last year
Root Capital partner Rafael Fritsch: "This is one of the best times ever to buy distressed assets in Brazil"