Man Group’s head of U.S. direct lending, Kevin Marchetti, said higher interest rates could boost private credit returns despite recent redemption pressures. He made the comments at the SuperReturn International private markets conference in Berlin, an event that brings together senior executives from asset managers, pension funds and other institutional investors.
Marchetti emphasized that the core middle‑market direct‑lending space still rests on solid credit fundamentals. Man Group, a London‑listed global alternative‑investment firm, runs a private‑credit platform that concentrates on sponsor‑backed transactions in recession‑resilient end markets, where default rates, losses and non‑accruals are well below long‑term averages. He noted that tight financial covenants, rigorous legal documentation and strong institutional ownership together create an attractive relative‑value opportunity for disciplined lenders, and that this approach is part of the firm’s broader alternative‑investment strategy.
Redemption pressures have sparked fresh liquidity worries across the private‑credit arena. A recent spike in redemption requests prompted Blackstone and Partners Group to cap withdrawals last week, reigniting concerns about the illiquid nature of certain structures that are marketed to retail investors. Marchetti said the pool of capital behind those funds “did not fully appreciate the illiquid nature of the underlying assets,” and he chalks the situation up to the growing pains of the asset class. The caps underscore the tension between investors’ demand for liquidity and the long‑dated nature of private‑credit assets.
U.S. inflation rose above 4% in May, with the consumer‑price index reaching 4.2% compared with 3.8% in April – the highest level in three years. The higher‑for‑longer rate environment, he explained, means that the floating‑rate loans that make up the core middle‑market portfolio will adjust upward as benchmark rates climb, delivering more attractive yields for investors. Higher benchmarks translate directly into higher coupon payments on those loans, enhancing overall yield.
Man Group remains “laser focused” on how soaring energy costs and the prospect of further rate hikes could affect the underlying portfolio companies. Rising energy costs have put pressure on operating margins, prompting lenders to scrutinise cash flows more closely. While liquidity risks remain a live concern, the firm believes that a disciplined lending approach in a rising‑rate backdrop can still generate solid returns for its investors.
Frequently asked questions
How do higher interest rates affect private credit returns?
Higher interest rates could boost private credit returns as floating-rate loans adjust upward with benchmark rates, delivering more attractive yields for investors.
What are the liquidity concerns in the private credit sector?
Redemption pressures have sparked fresh liquidity worries across the private-credit arena, with some funds capping withdrawals due to the illiquid nature of certain structures.
Why are private credit funds facing redemption pressures?
The pool of capital behind private credit funds did not fully appreciate the illiquid nature of the underlying assets, leading to a spike in redemption requests.
How does Man Group's private credit platform perform in terms of default rates?
Man Group's private credit platform concentrates on sponsor-backed transactions in recession-resilient end markets, where default rates, losses, and non-accruals are well below long-term averages.
