New York Forum 2023: Rising to the challenges

At our gathering of private debt professionals from the US and elsewhere, participants had a sense of resilience and opportunity – while also acknowledging that tough times may lie ahead.

The first morning of the PDI New York Forum 2023 at the Marriott Marquis hotel, with around 500 in attendance, was an upbeat one as – despite the various economic and geopolitical challenges – speakers and panel members spoke of the asset class’s growing opportunity set, encouraging circumstances for new investments and the apparent resilience of current portfolio assets.

Those present were reminded that, despite all the talk of rising interest rates, they are actually at more normal historical levels, having averaged around 6 percent over the last 60 years. The ultra-low interest rate environment seen in recent years, rather, was the aberration. And in this ‘normal’ environment – in which even the threat of a recession seemed to be receding, in the US at least – the talk was of thirst for yield driving continuing investor interest, challenged public markets versus private market tailwinds, and surprisingly good portfolio performance year-to-date. The asset class is in, as one panellist succinctly put it, “a really good spot”.

Of course, the last thing anyone at the event would want to be accused of is complacency – a wilting M&A market acting as a drag on dealflow is a reminder that not everything is humming along nicely. One panellist insisted we haven’t seen anything approaching the full consequences of rate rises for borrowers yet and that outside the US – in parts of Europe and China for example – there are major, ongoing challenges. “Despite the overarching tailwinds, it’s time to up the discipline,” said one panellist.

But the overall mood might best be summed up as relief. When the US regional banking crisis hit, “it looked initially like a cataclysm,” said a panellist. “The sense was, ‘Oh my god, there will be more of this’.” But the Fed stepped in and things swiftly calmed down; what could have been a catalyst for market meltdown turned out to be an isolated and containable event. Coupled with its swift recovery from the covid/lockdown period, the private debt market appears to be once again demonstrating its ability to cope with adversity.

Market dislocations are also a time when private debt mangers tend to uncover fresh opportunity sets – and that’s exactly what they’ve found as a source of valued liquidity in the broadly syndicated loan market where deal tickets have reached multi-billion-dollar proportions. While some sort of private debt pullback from the space is expected when the market normalises and the banks return in force, there is also a feeling that funds have made a good impression with their flexibility and speed of execution – leading some to believe they will not be easily ousted.