UK private markets fund managers believe private credit risks are generally manageable despite recent high-profile warnings and restrictions on some funds, new research from Wealth Club, the UK’s leading non-advised investment service for high-net-worth individuals, shows.
The Bank of England and JP Morgan CEO Jamie Dimon have been among those issuing warnings about private credit recently and some funds have introduced withdrawal restrictions for investors raising the prospect of wider systemic issues in the sector.
The study across the private equity, private credit, real estate and infrastructure sectors found more than two out of three (68%) managers acknowledge that some concerns are justifiable but are manageable overall while one in 12 (8%) say concerns are significantly overblown.
There is some concern however – one in five (21%) believe there are serious risks in some parts of the private credit market and 61% say they are fairly or very concerned that problems in private credit markets could become a financial stability issue when or if there is another economic downturn.
Most believe those concerns will not have much impact on enthusiasm among retail and HNW investors for private market investments. Nearly one in five (19%) believe private credit concerns will increase interest in other private markets while 40% believe they will have no broader impact. Just 2% believe they could significantly reduce enthusiasm while 39% believe the concerns will slightly reduce positive sentiment.
The biggest concern about the private credit sector is over-optimistic valuations cited by 25% of those questioned while 17% are worried mostly by increased defaults and 16% by retail and HNW investor exposure.
“Private markets fund managers are taking a realistic and pragmatic approach to warnings about the private credit market and the introduction of withdrawal restrictions by some funds.
“They recognise that private credit covers a wide variety of funds and investments and while there are concerns about some parts of the market that does not apply to all funds and all managers. In fact many believe private credit concerns will simply increase interest in other private markets.
“When it comes to their own personal portfolios, our research shows that almost all of the fund managers we surveyed invest in private markets themselves and they are well aware of issues throughout the market and within different sectors. Just as in public markets investors need to be aware of the risks before investing.”
Alex Davies, Founder and CEO of Wealth Club
