John Carter, CRC’s Post

The recent decline in bank credit levels poses a red flag for the economy, reflecting a trend not seen since the global financial crisis. In these challenging times, eCapital is a strategic partner, offering tailored financial assistance to businesses affected by reduced credit availability. Together, we can weather the storm and pave the way for economic resilience. Please reach out to discuss how we can help. https://bit.ly/3TxBoQb #eCapital #FinancialAssistance #BusinessResilience

The 2008 #FinancialCrisis: A Comprehensive Overview The 2008 financial crisis, often referred to as the Global Financial Crisis (GFC), was one of the most severe economic downturns since the Great Depression of the 1930s. It shook the global economy, leading to widespread unemployment, bankruptcies, and a collapse in housing markets. Here’s a detailed look at what happened and why it still matters. What Caused the 2008 Financial Crisis? The crisis was primarily triggered by the bursting of the U.S. housing bubble, which exposed weaknesses in the financial system. Key contributing factors included: 1. Subprime Mortgage Lending: Financial institutions issued home loans to borrowers with poor credit histories, betting on rising house prices. 2. Securitization and #CDOs: Banks bundled these risky mortgages into Collateralized Debt Obligations (CDOs) and sold them to investors worldwide, spreading risk across the financial system. 3. Lack of Regulation: Institutions like investment banks operated with minimal oversight, engaging in high-risk trading. Instruments like Credit Default Swaps (#CDS), used to insure against loan defaults, were unregulated. 4. Overleveraging: Major financial institutions took on excessive debt to maximize profits, making them vulnerable to shocks. 5. Housing Market Collapse: When housing prices started falling in 2006–2007, borrowers defaulted en masse, leading to massive losses on mortgage-backed securities. Impact of the Crisis 1. Economic Consequences: Global GDP contracted, and millions of people lost their jobs. Household wealth evaporated as stock markets crashed and housing prices plummeted. 2. Banking System: Major institutions like Lehman Brothers failed, and others required government bailouts. Trust in the financial system was severely eroded. 3. Global Recession: The crisis spread beyond the U.S., with Europe and Asia experiencing sharp downturns. Emerging markets, though initially resilient, felt the ripple effects through reduced exports and capital flows. Key Lessons Learned 1. Need for Stronger Regulation: Post-crisis reforms like the Dodd-Frank Act in the U.S. imposed stricter regulations on banks to prevent excessive risk-taking. 2. Importance of Transparency: The crisis highlighted the dangers of opaque financial instruments like CDOs and CDS. 3. Systemic Risk Awareness: Institutions deemed "too big to fail" became a focal point for policymakers, ensuring better safeguards against future collapses. 4. Global Interconnectivity: The crisis revealed how interconnected global financial markets are, emphasizing the need for coordinated international responses.

PIMCO published a great report recently called “Navigating the Descent” PIMCO is a global investment management firm specializing in fixed income securities. Established in 1971, PIMCO has become one of the largest and most respected fixed-income managers in the world, managing trillions of dollars in assets for a diverse client base. Tons of nuggets in here - key takeaways: § Global economy is on a hard-to-predict course due to the steepest interest rate hikes in decades. § Developed Market (DM) central banks have possibly ended their hiking cycles, and focus is now on the timing and pace of expected rate cuts, usually beginning after recessionary conditions. § Opportunities exist in fixed income markets, credit markets (like U.S. agency mortgage-backed securities), asset-based and specialty finance in private markets, and EM debt owing to attractive yields and valuations. § Overall DM central banks expected to start rate cuts by mid-2024, with potential for aggressive cuts as history indicates the magnitude of previous hiking cycles often corresponds to eventual easing cycles. § Measures taken during post-pandemic supply chain normalization have contributed to easing of inflation, but recession risks remain due to stagnant supply and demand growth. § Fixed income investments are seen as attractive given the potential for resilience in various economic scenarios and high starting yields. High quality bonds are recommended rather than stepping down to lower credit quality. Link to full report: https://lnkd.in/gTqHqVcP

It's out! Brand-new Financial Times data visualisation project, explaining how private equity entangled banks in a web of debt. “There should not be a pocket of the market that touches on so much of the economy in such a sizeable way, where we can say, oh there’s leverage, and then very few of us can explain what that leverage means and why it might — or might not — be risky”, says Victoria Ivashina, of Harvard Business School Story by Ortenca Aliaj, Sam Joiner, Sam Learner, Irene de la Torre Arenas, William Louch & I https://lnkd.in/gVKvAuEh

Complex debt is making a comeback on Wall Street, with issuance climbing to pre-2008 levels. While some see opportunity, others warn of potential risks. Here’s an inside look at how this trend is shaping the financial markets. #DebtBoom #MarketWatch

Too much of a good thing! Recently, I came across an insightful Bloomberg piece on divergence in marks for the same underlying across funds in the Private Credit world. To give a gist, in addition of providing some standout examples of the NAV divergence, the article highlighted motivations for its acceptance: LPs preferring what it calls 'Code of Silence' rather than seeing and dealing with volatility The issue with divergence in marks cannot be resolved without a transparent market clearing price. Even, private credits peers in regulated banking system might have valuation divergence between them to the extent that some inputs in the entire valuation process are subjective. However, NOT having a publicly quoted price is the very definition of private market investing and in theory investors earn premia for illiquidity and lack of transparency doing so. Since this is a risk premia and not alpha, investors must be willing to occasionally accept outcomes to the left tail of the distribution. I suspect, small size of the market relative to the opportunity set and macro tailwinds in form of: strong economy and easy exits truncated realized left tail outcomes in recent past. Earning risk premia needs being disciplined with capital deployment and overcoming recency bias. However, as observed for ages, investors invest the most at the top (FOMO) and least at the bottom. Explaining why dollar weighted realized returns are consistently below reported returns (asset, fund, strategy, instrument). If investors believe that this is indeed the 'golden age' of private credit! And that perception is largely based on nominal recent past returns without giving a thought to how much of that is systematic risk premia, how much is beta and how much is alpha; expect the past evidence of dollar weighted return lagging reported returns to hold true. LPs if indeed prefer 'Code of Silence' begs some thought on whether preferring 'not to see' volatility and consequently minimizing asset allocation and portfolio churn decisions it entails, can only be accomplished via a hard lock (commitments to illiquids with volatility smoothening) at a price? Or maybe more costs effectively through investment policy framework that overcomes frequent churn based on pressure to beat the peer group / benchmark on a ever shorter time horizon! If you think about it, investment legend Warren Buffet achieves something similar by ignoring the urge to act on every real-time tick, keep tabs on simple metrics monitoring market extremes and nerves to wait it out! The billion $ question is how to replicate that mindset in a consensus based committee setting? This post started with divergence in marks, pertinent to bear in mind that although it is difficult adjudicating if, higher or lower marks is more reliable indicator of liquidation value; a fund with proclivity for higher marks might be suspected to have co-proclivity for higher mgmt. fees 😂

In early 2024, investors’ eyes remain intently focused on the Federal Reserve’s policy path, as decelerating inflation should open the door to Fed rate cuts this year—a pivotal event for financial markets. Historically, risk assets have thrived during rate-cutting cycles if recession is avoided. This year, however, with the “maturity wall” looming, investors may not be as indiscriminate in their support of markets. From Seema Shah, Principal Asset Management https://lnkd.in/geKumJUV #credit #risk #markets #economy2024

Historical data shows that private credit has consistently thrived during market stress. From 2000 to 2024, upper quartile private debt IRRs have outperformed median IRRs by an astonishing 800 bps. With upper quartile returns hitting 22% compared to the median at 14%, it’s clear that the best funds excel even in challenging environments. Private credit performs well in low liquidity conditions, as evidenced by its robust performance during the Global Financial Crisis and the recent Fed tightening cycle 📈 Check out our latest article for a comprehensive forecast through 2024 and into 2025: https://lnkd.in/ex8dDwee Plus, our team will be at SuperReturn North America in New York—stop by to discuss insights and opportunities in this evolving landscape! Schedule a meeting with our team here: https://lnkd.in/eXTyRfxx #CEPRES #privatecredit #interestrates #privatemarkets