Wealth managers are divided on how high net worth clients will be affected by the souring outlook of private credit, according to several sources.
One Hong Kong-based head of investment advisory at a Swiss pure-play said that most clients are diversified enough to avoid any major losses.
“This means diversification not only across sectors, but also vintages,” he added while requesting anonymity.
However, others are less convinced that the industry is sufficiently insulated. An unnamed executive at an external asset manager in Singapore said he believes that some clients have been over-allocated due to misaligned incentive structures at banks.
“Clients are initially attracted because of their constant chase for higher yields, but they might not fully appreciate the risks embedded, especially with regard to fund gating,” he observed. “This could be particularly painful for some smaller clients who may need the liquidity and might be forced to sell other assets.”
The consensus view is that the private credit asset class as a whole is facing a structural downturn from borrower distress with defaults famously dubbed in a metaphor by J.P. Morgan chief Jamie Dimon as “cockroaches”. According to an MSCI report released last week, private credit funds have cut the values of more than one-tenth of their loans by at least 50% – a level usually linked with “deep distress or risk of restructuring”.
