watch
now
With
the
S&P
500
on
pace
for
its
worst
monthly
performance
since
December
of
last
year,
investors
are
increasingly
turning
to
alternative
assets
outside
of
equities
and
bonds
to
generate
returns.
One
of
those
strategies
is
private
credit.
Despite
the
changing
macro
backdrop,
the
industry
has
posted
annual
gains
for
the
last
13
years
and
is
expected
to
continue
drawing
strong
interest
from
institutional
investors. According
to
a
new
report
by
Pitchbook,
investors
are
likely
to
put
more
than
$200
billion
in
commitments
into
private
credit
this
year,
for
the
fourth
year
in
a
row.
As
the
strategy
gains
steam,
some
are
concerned
that
higher-for-longer
interest
rates
could
put
more
stress
on
the
balance
sheets
of
borrowers.
Though,
Michael
Arougheti,
who
helms
one
of
the
largest
private
credit
firms
in
the
world,
said
he’s
not
too
concerned
about
a
major
default
cycle.
“I
would
expect
default
rates
to
tick
up
but
not
to
dangerously
high
levels,”
Arougheti
said
in
an
interview
with
CNBC’s
Leslie
Picker.
“The
irony
of
this
moment
in
time,
which
is
unlike
many
cycles
we’ve
seen
before,
the
stresses
are
being
created
by
liquidity
and
high
rates
not
deteriorating
cash
flow.”
However,
as
servicing
the
debt
becomes
more
expensive,
that
could
force
more
negotiations
between
private
credit
managers
and
their
borrowers.
“If
rates
stay
high
for
long…through
the
end
of
2024,
that
debt
service
will
force
companies
back
to
the
table,”
Arougheti
added.
Arougheti
said
the
firm
has
been
benefitting
from
rising
rates,
boosting
their
relative
return.
He
noted
that
in
pulling
data
points
from
the
3,000
portfolio
companies
Ares
lends
to
and
invests
in,
he’s
seen
“fundamental
strength
despite
the
rise
in
rates.”
