Bruce Richards discusses why you could describe the private credit market as being in a “golden era.”
Hello, I'm Bruce Richards, the CEO, managing partner, and chairman of Marathon Asset Management. Founded the firm 25 years ago with Lou Hanover. We're a global credit manager focused on investing in the credit markets throughout the world, with 180 professionals in six different offices.
The reason why we coined the phrase the "golden era of credit” is because it's the golden era of credit. The current landscape in private credit is pretty remarkable. If you go back to the great financial crisis of 2008-2009, it was a relatively small marketplace. Middle market lending was 100 billion. Today, it's 1.4 trillion. So we've had a 14-fold increase over a very long period of time because the banks, which were huge lenders in the private credit markets back in ‘08-’09, had new regulations that came in at a time when capital formation among private lenders came to the forefront.
So, Fed funds are at a 23-year high. We haven't had Fed funds this high. And thanks to the Fed bringing us out of financial repression where they kept rates at zero for way too long, now they have to fight inflation, and the Fed funds rate is now over five. It's a five-and-a-quarter, five-and-a-half percent range. And so with spreads having widened in the private credit markets because the banks are pulling back, were it not only getting that higher base rate, but we're also getting the much wider lending rate. And so you're getting paid basically double the rate of return in terms of current cash flow for lending today versus lending when the Fed had rates at zero, and banks were incredibly active in lending then. Banks have pulled back in a big way, and rates are much higher today. So the rate of return you can make in the public credit markets, the rate of return you can make in the private credit markets is the highest we've seen in a generation.