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Upbeat private credit outlook focuses Big 4 private equity firms


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Upbeat private credit outlook focuses Big 4 private equity firms

The four largest publicly traded alternative asset managers remain optimistic about the expansion of their private credit businesses as traditional banks retreat and borrowers seek alternative debt capital options.

"We believe that we are in the best direct lending environment that we have seen for the past 10-plus years," KKR CFO Robert Lewin said on the firm's first-quarter earnings call May 8.

Private credit markets are growing amid a challenging economic environment marked by increased costs of capital, widening spreads and stricter underwriting standards by traditional banks. Private credit is also viewed as an alternative source of venture capital funding after the collapse of Silicon Valley Bank on March 10.

Speaking on the May 8 earnings call, KKR & Co. Inc. Partner and Head of Investor Relations Craig Larson said "midmarket private equity firms, which really are a lot of the driver of the deployment you see here, do have a lot of dry powder. And so you're seeing more of these firms, more midmarket borrowers generally who want to use the private debt markets."

"The private debt markets, broadly, and direct lending, specifically, to continue to grow and take share [from traditional lenders]," Larson added.

Blackstone Inc. was equally buoyant. President and COO Jonathan Gray said on the firm's earnings call April 20 that current market conditions have created "a golden moment for private credit."

Gray expects significant growth in private credit with opportunities in asset-backed lending and net asset value financing.

Blackstone aims to capture a share of these flows through partnerships with banks that potentially focus on funds, more targeted separately managed accounts with insurance, and pension clients, he said.

The opportunity involves convincing institutional investors to take less liquidity in fixed income and partner with firms like Blackstone.

The Carlyle Group Inc.'s global credit business is growing by offering capital solutions to borrowers' core needs for growth and liability refinancing, said CEO Harvey Schwartz on the firm's first-quarter earnings call May 4.

"While companies are not raising capital the same frequency as prior years, their core needs haven't changed," Schwartz said.

Apollo Global Management Inc. is also leaning into a range of investment opportunities across private credit platforms after the dislocation in the banking sector.

"For our ecosystem, we love the direct lending, below investment-grade levered lending business sometimes. Right now, we happen to love it," said CEO Marc Rowan on the firm's first-quarter earnings call May 9.

"We can make commitments underwriting in a negative mindset, we can earn wide spreads, and there's a shortage of capital so we have good deal selection," Rowan added. "Now is a good entry point to below investment grade, levered lending, private credit, direct lending, however you define it."