Private Credit Funds With No Skin in Game a Worry: Credit Weekly

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Bank Of International Settlements,Private Credit,Bloomberg Television

(Bloomberg) -- Watchdogs are concerned about the “substantial” risk to investors in the private credit market after it emerged that almost 40% of funds don’t...

-- Watchdogs are concerned about the “substantial” risk to investors in the private credit market after it emerged that almost 40% of funds don’t have skin in the game.The decision by so many managers to avoid putting their own capital into the vehicles creates an “incentive misalignment,” the Bank of International Settlements said this week. The risk is that industry players could prioritize their profit over investors’ returns.Private credit has grown rapidly into a $2.

In addition, traditional lenders can cut their average capital demands by extending short-term loans to shadow banks, which typically attract a more favorable regulatory treatment than the consumer and real estate lending that make up the majority of their loan books. Blackstone Inc. is leading a €1.35 billion private debt financing to support the buyout of property-management software maker Aareon AG by TPG Inc. and Canadian public pension fund CDPQ.

Rising speculation of an interest-rate hike by the Bank of Japan as early as this month is sapping investor demand for 10-year notes in a busy corporate bond market and driving up premiums on new issuance. A group of lenders to Altice USA Inc. has agreed to band together in an effort to make it harder for the troubled company to pit creditors against each other.

 

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