Private credit has been pretty quiet so far. There are cracks, for sure — and some early March data tapes are showing issues. But for the most part lenders and borrowers are still talking. Negotiating. Re-printing loan docs, offering concessions, and there isn’t a lot of stuff to do yet.
That’ll change. Markets react to “what is going to happen in the future” whereas loan books respond to: “what just happened.”
A lot of our investors have asked us what we are seeing, and our answer has been:
“Normally, you buy high yielding assets because they’re under stress. But right now — the only way to buy high yielding stuff is to buy uncertainty.”
In distressed buying, you buy a bag of stuff, and you’re like… wow… this bag really stinks. I don’t really want it unless I can pay very little for it. And you own it, and you sorta know how bad it probably is, and you get paid for that.
But right now, all we’re seeing is: “hey, here’s a bag. The bag seems bad… but we don’t know yet. And we don’t want it… do you?”
And the only way to make that trade is to take a view on what’s going to happen next… and to get paid for buying uncertainty.
And that’s not interesting. So right now, the trade is to buy uncertainty, not to buy distressed, and we’re gonna sit that trade out.