Private Equity and Private Credit Asset Managers Enjoy Relative Resilience
NEW YORK, January 11, 2023–(BUSINESS WIRE)–KBRA releases its 2023 Financial Institutions Sector Outlook, examining positive attributes of private equity (PE) and private credit asset managers and mitigants for economic headwinds. During this period of increased funding stress, certain asset classes stand out as particularly resilient owing to stronger business model fundamentals. PE and private credit asset managers are among these fundamentally stronger asset classes, reflecting a business model that emphasizes resilient and relatively stable management fees augmented by the ability to generate considerable performance-based and co-investment revenues over time. In addition, these firms have an ability to ride out business and market cycles due to the flexibility built into expense structures and a focus on long-term fund structures with limited redemption and net asset value (NAV) risk.
KBRA rates 40 asset managers, the vast majority of which focus on PE and private credit strategies—aggregating approximately $2.6 trillion in assets under management (AUM). These positive attributes will likely enable KBRA-rated asset managers to better navigate the emergent challenges when compared to most types of financial institutions, even as rising interest rates, persistent inflation, and a weakening economy present headwinds to performance across the credit ratings spectrum. KBRA’s average rating in the A category recognizes these comparative strengths combined with relatively modest debt levels at management companies. KBRA’s rating Outlook for this sector remains Stable. The bulk of these ratings are unpublished and related to privately placed debt totaling $18 billion.
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KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.
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