The Business Brew
Larry Hozenthaler - Private Credit Risks and Opportunities
Feb 14, 2025
Larry Holzenthaler, a portfolio manager at First Eagle Alternative Credit, shares his expertise in corporate lending and private credit strategies. He discusses the evolution of private credit, emphasizing its attractiveness as an investment due to current economic conditions. Larry highlights the shift from traditional equity investing to private credit, the importance of risk management, and the unique redemption processes of interval funds versus BDCs. He also delves into the impact of banking regulations and the challenges posed by fluctuating interest rates on credit performance.
01:09:33
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Quick takeaways
- Private credit has evolved significantly, offering corporate lending primarily to below-investment-grade borrowers, filling gaps left by traditional banks.
- The COVID-19 pandemic highlighted the resilience and attractive returns of private credit, particularly as it outperformed public lending alternatives during market volatility.
Deep dives
Understanding Private Credit's Role
Private credit provides corporate lending opportunities mostly focused on below-investment-grade borrowers. This sector has gained traction since the mid-1980s, evolving substantially from junk bonds, where companies were hesitant to engage in below-investment-grade debt issuance. The market caters primarily to middle-market firms, characterized by high growth potential and often backed by private equity sponsors, who ensure thorough due diligence before financing. With private credit's growth, there is a notable shift toward senior secured loans, emphasizing downside protection and conservative risk management.
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