The private credit market serves a very similar role to venture capital and is roughly the same size.
- Private credit: approx. $1.5T per year (MS Co-pilot)
- Venture capital: $1.5t-$2t (ibid)
Here we are, at the birth of AI, a time when venture capital, private credit etc. is of paramount importance, and the companies that want to form, or re-form themselves, are in worse shape than at any time in recent history.
Public and private credit markets can both offer attractive investment opportunities that reward careful analysis across regions, sectors, and securities. As an active daily participant in both of these markets, PIMCO observes that there are key structural differences between them as well as significant sources of relative value differentiation today. . . .
Based on the significant deal flow we are seeing across markets, we also observe that the liquidity premium in many areas of private markets has tightened to unattractive levels – as it has in certain areas of public markets. We are also seeing deterioration in covenants that traditionally protected lenders in private credit markets. . . .
The percentage of private corporate direct lending borrowers with fixed charge coverage ratios below 1x has risen from 15.9% two years ago to 40% this year (see Figure 4). This means 40% of private credit borrowers (size weighted) are not producing enough cash flow to service all debt, taxes, and capital spending needs.
Navigating Public and Private Credit Markets: Liquidity, Risk, and Return Potential | PIMCO
