Variation in the performance of private credit managers is set to increase, according to JP Morgan Private Bank.
In a new report, the business said that while historically the outcomes in private credit have been “extremely tight”, the current landscape means this is set to change.
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“We believe variation in the performance of private credit managers will increase. Macroeconomic factors stand to be one contributor. An economic slowdown may lead to pockets of stress in companies that are over-levered and experiencing tight cash flows.
“This may be especially true of companies that are sensitive to a cyclical slowdown or importers and those who rely on them and may be vulnerable to higher tariffs.”
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It said that while about “half of private credit lending is to sectors generally less subject to those risks, such as software and healthcare, the underlying strength of economic growth and the level of default activity are still important indicators to watch”.
“We also remain cautious on public business development companies (BDCs) that have lower quality asset bases than their private non-traded BDC counterparts,” it added.
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