Degradation of underwriting standards and weaker covenants due to hyper-competition.
Structural pressure to deploy capital quickly leads to poor investment decisions.
Illiquidity mismatch in retail-focused funds creates the potential for a slow-motion 'run on the fund'.
High leverage on portfolio companies is unsustainable in the current interest rate environment, likely leading to high defaults and low recovery values.
Lack of mark-to-market valuation has masked underlying portfolio weakness and inflated past returns.
Opportunities Identified
Distressed debt funds will likely find opportunities to acquire quality assets from stressed private credit sellers.
The public high-yield bond market now offers a higher-quality credit profile than in the past.