Jade Murray’s Post

Oh these risks have been increasing for some time now. "Remember the global financial crisis? Well, high-risk securities are back" "....16 years later, some experts believe new risks are emerging. And this time, they are linked to highly indebted companies backed by private equity firms, which are part of the growing but opaque portion of the financial system known as the shadow banking sector. Shadow banking refers to financial firms that face little to no regulation compared with traditional lenders, and includes businesses such as hedge funds, private credit and private equity funds.... ....“The private equity firms invest in companies that are almost failing, and in order to make these companies survive, they load them up with debt,” said Postel-Vinay. "These loans end up being repackaged as well, a little bit like the junk mortgages before the 2008 crisis.”..." https://lnkd.in/ewBCr5EA

With financial markets hitting all-time highs and the "alpha-dogs" left only with "Beta" on the table, maybe it is time to remember "Preservation of Capital" as a primary goal. Regulators have warned about a lack of transparency around private loan valuations and potential liquidity mismatches over the last year or so, as the market has ballooned to $1.7 trillion in size and interest rates have remained high.

Balancing Innovation and Risk in Private Credit With private credit offering higher returns and more flexible terms, how can we effectively balance the innovation in lending with the potential financial stability risks highlighted by the IMF?" The private credit market has grown to a $2 trillion industry, attracting investors with high returns and flexibility. This shift has seen private funds stepping in where traditional banks have pulled back, providing bespoke deals and direct lending solutions. However, the IMF warns of potential risks due to the sector's opacity. Infrequent valuations and unclear credit quality could threaten financial stability. Many borrowers in this market are highly leveraged, making them vulnerable to rising interest rates. The interconnectedness of private credit with the broader financial system is also a concern, with significant exposure through banks, pension funds, and insurers. The challenge lies in maintaining the innovative edge of private credit while mitigating potential risks through better transparency, valuation practices, and oversight. #Finance #PrivateCredit #Investment #FinancialStability #InnovationVsRisk

The Bank of England has raised concerns over a potential sharp repricing of private equity valuations in light of a difficult fundraising environment for the sector due to higher interest rates, and rising default rates on debt linked to private equity. "The extent of transparency around asset valuations, overall levels of leverage and the complexity and interconnectedness of the sector make assessing financial stability risks difficult and mean that risks need to be managed carefully, both by those in the sector and by their counterparties," it said. The warning follows concerns in recent months about the challenges in assessing the financial stability risks posed by private credit vulnerabilities in a higher interest rate environment. In its latest financial stability report, the Bank of England argued private credit and leveraged finance, which have roughly doubled in size in the last decade, appear "particularly vulnerable" to "sharp revaluations".

✦ The IMPORTANCE of balancing REGULATION and CREDIT FLOW in the financial sector is highlighted to maintain FINANCIAL STABILITY and INCLUSION. ✦ INCREASED PROVISIONING for NBFCs and regulatory constraints on MFIs are affecting financial stability, presenting challenges to the ECONOMIC ECOSYSTEM. ✦ The rise in PERSONAL LOAN SHARE is elevating DEFAULT CONCERNS, prompting REGULATORY MEASURES to ensure stability and risk mitigation. #FinancialStability #Regulation #CreditFlow #NBFCs #PersonalLoans

Regulation is key to the orderly functioning of a financial system. Participants in the financial services industry should welcome sensible regulation. This FT article reflects badly on the Bank of England as the concern raised is implausible. “The prospective correlations are everywhere, and it’s not difficult to imagine a scenario, such as malpractice at a financial sponsor or the bankruptcy of multiple portfolio companies, where risk correlations increase significantly, and liquidity evaporates, leaving banks open to severe, unexpected losses,” said Jackson." There are far bigger issues about which the Bank of England should worry. The quote above misunderstands portfolio theory, the growth of private credit, and the concept of correlated risks. It is frustrating that senior Bank of England regulators are spending their time on implausible scenarios and not on those more likely to cause a harmful impact.

🚀 The Rise of Private Credit: A Transformative Trend 📉 As private credit continues to reshape the financial landscape, it's essential to understand both its potential benefits and the challenges it presents. The recent Yahoo Finance article delves into this debate, highlighting diverse opinions on Wall Street. Key points: 1. Diverse Opinions: Private credit is seen as a vital alternative to traditional lending by some, while others warn of potential market risks. 🤔💬 2. Growth Drivers: Factors such as low-interest rates and tighter bank regulations are fueling this rise. 📈🏦 3. Market Impact: The expansion of private credit is set to influence investment strategies and regulatory frameworks. 📊⚖️ 💬 What are your thoughts on the rise of private credit? #PrivateCredit #Finance #Investment #MarketTrends #AlternativeInvestments

How worried should we be about #privatecredit? A private credit market growing so fast, away from the oversight of bank regulators, may be a new source of #systemicrisk. With smaller #investors taking greater exposure to an asset class whose high returns and low losses look almost too good to be true, there could be trouble ahead | #financialregulation #banking http://spr.ly/6043biV37

Our latest QD view – Banking back on top – Trump deregulation hopes reignite financials sector - looks at the banking sector following Trump's victory as hopes of deregulation increase. However, as we explore in this article, the roots of financial sector strength go deeper. https://lnkd.in/eCae9D2D Banker Investment Group The Merchants Trust PLC POLAR CAPITAL GLOBAL FINANCIALS TRUST PLC #QuotedData #InvestmentCompanies #InvestmentTrusts #Global #UK #UKEquityIncome #SpecialistEquityFunds #Financials #FinancialInnovation #Equity #Bond #Funds

The punch line here really is that Private Credit as a segment remains small relative to total debt and the economy, but the risks of contagion and banking instability cannot be ruled out. Last September, the International Organization of Securities Commissions (IOSCO) focused on four themes in a report on Emerging Risks in Private Finance: transparency, leverage, market integrity and risk transmission to the public markets. In December, the Federal Reserve, FDIC and Comptroller of the Currency issued a proposal for revised call report requirements that would include more nondepository and private credit data. The Financial Stability Oversight Council put it this way in its 2023 annual report: “Private credit is a relatively opaque segment of the broader financial market that warrants continued monitoring. Despite its accelerating growth, private credit still represents a relatively small portion of the U.S. economy and also presents limited liquidity transformation risks. However, the extent to which the private credit market poses financial stability risks remains uncertain.” https://lnkd.in/gMcwg64C