Smorgon-backed Arrowpoint tips private credit yields to hold up despite rate cuts
One of the new wave of private credit funds, Arrowpoint Capital has a very specific focus and likes to be boring. But it is not immune to stresses in the sector.
The acceleration in the easing of the interest rate cycle, fuelled by the US Federal Reserve’s 50 point cut Friday, will send shockwaves through the burgeoning private credit market, globally and in Australia.
Higher for longer interest rates – along with decreased bank appetite for lending to certain sectors – have been a huge driver of interest in private credit as a source of juicy returns.
But since most private credit debt deals involve floating rate instruments, rate cuts reduce returns from them to investors. Cuts also typically debt products less attractive relatively to asset classes such as equities.
In Australia, yields have already been falling in private credit. Meanwhile there are signs – and regulator interest – the credit quality of some funds is not what it seems.
