The Alternative Credit Council’s (ACC’s) 2nd New York Private Credit Summit saw more than 250 people participate in the event.  The breadth and depth of knowledge on display across the programme and amongst delegates was exceptional, making for a compelling day of debate about the forces shaping the future of the asset class. I’m delighted to share some of the key takeaways from the Summit:

It’s all about (Financing) the Economy

The ACC launched its latest Financing the Economy research at the Summit.  This brought together the views of 30 leading figures within the industry, alongside ACC data on how managers expect to position themselves over coming years. The optimism evident within the data set and interview findings – permeating everything from expansion into new markets, recovery rates and capital raising – was explored throughout the day, with each panel taking a deeper dive into the paper’s core themes.  The most important of these is the sustainability and resilience of the asset class.  Although the next decade for private credit will pose different challenges to the last one, it was encouraging to see the core sentiment – that the sector is well set to continue its upward trajectory – shared by so many of the speakers and delegates.

The art of the possible

While direct lending to SMEs and mid-market companies tends to generate the most column inches, the diverse range of strategies that currently sit under the broader private credit label are now garnering more attention.  Niche or speciality lending strategies are appealing at a time when investors are increasingly looking for something they’ve not seen before.  Managers with a unique approach can also be a compelling proposition when many are cautious about the future and looking to diversify their exposure.  At its core, private credit is about providing borrowers with finance and investors with access to assets within the lending markets in the most direct manner possible. It was great to hear how so many managers are taking this principle and applying it to newer markets to expand the boundaries of the private credit universe.

Winter is coming

The specter of the ‘credit cycle’ has hung over the private credit market (and industry conferences) for many years. While the only thing that can be said with any certainty is that we’re closer to the end of the credit cycle today than we were yesterday, it was encouraging to see how many managers are engaging with this challenge across their businesses.  Speakers across our panels expressed similar views on how origination, documentation and workout capacity will be the most important differentiators of performance during any downturn.  Some went a step further noting that that this might ultimately be both good and  necessary for the market as it will both thin out some of the ‘me too’ managers, while also removing the remaining doubt some investors have about private credit’s ability to perform through a cycle.

Build it and they will come

A common point of discussion was the capacity of the sector to scale up and ensure that the increasing amount of capital allocated to the sector is invested efficiently. The trade-off between investor demand for customized products or strategies vs. their desire for consistency in risk reporting or comparable performance metrics is a particular challenge for firms looking to scale their business. Managers are naturally cautious about any movement towards commoditisation, with any shift in this direction seen as a harbinger of lower standards across the market.  At the same time there is an increasing recognition that better (or at least more consistent) operational standards within private credit will develop as the asset class becomes a larger and more permanent fixture in the allocation mix for institutional capital. Successfully resolving these competing dynamics will be a key challenge for firms over coming years.

ESG meets D&I

The volume of attendees who attended our final panel session was a reflection of how far ESG considerations have shot up the agenda within the asset management world.  That’s not to say managers are finding it easy to incorporate ESG considerations into their investment process.  Indeed, the contributions of our speakers suggests the opposite with many finding it difficult to reconcile investor expectations with the available data, even when it comes to assessing their own internal approach to ESG.  This also extended to the topic of diversity and inclusion (D&I), and there was a warm reception for AIMA’s recent paper setting out a series of actions to support our members as they engage with this important issue.  Sharing knowledge on both ESG and D&I in these forums is a very effective way to support our members as they internalize these considerations within their businesses.  We intend to continue the conversation on both ESG and D&I in 2020, so please reach out to me or your regular AIMA contact if you want to be more involved in this aspect of our work.

Finally, I want to say a huge thank you to all our speakers, delegates, sponsors and colleagues who made the day such a success.  I’m already looking forward to next year’s event and look forward to announcing some exciting news regarding other ACC events across the globe in 2020.