Despite headlines blaming private credit for failures like First Brands, the vast majority (over 95%) of the exposure lies with banks and in the liquid credit markets. This narrative overlooks the structural advantages and deeper diligence inherent in private deals.
In large loan portfolios, defaults are not evenly distributed. As seen in a student loan example, the vast majority (90%) of defaults can originate from a specific sub-segment, like for-profit schools, and occur within a predictable timeframe, such as the first 18 months.
In certain private markets like non-insurance asset-based finance, the need for a massive platform, infrastructure, and capital scale creates enormous barriers to entry. This dynamic means the market will consolidate around a few dominant players, not support a fragmented landscape.
Evaluating data center investments is like analyzing net lease real estate. With a tenant like a MAG-7 company, the investment is primarily a bet on the counterparty's creditworthiness, not the long-term value or potential obsolescence of the physical data center itself.
Private equity's reliance on terminal value for returns has created a liquidity crunch for LPs in the current high-rate environment. This has directly spurred demand for fund finance solutions—like NAV lending and GP structured transactions—to generate liquidity and support future fundraising.
Private credit allows investors to act like chefs—deeply involved from ingredient sourcing (diligence) to final creation (structuring). Liquid market investors are like food critics, limited to analyzing the finished product with restricted access to information, which increases risk.
The Ares Pathfinder funds embed philanthropy into their structure by pledging 5-10% of the firm's carried interest (promote) to charities. This model aligns financial success with social impact, has generated over $40 million, and inspired a wider "Promote Giving" movement.
Unlike private equity (terminal value) or syndicated loans (interest-only), asset-based finance (ABF) provides front-loaded cash flows of both principal and interest. This structure inherently de-risks the investment over time, often returning significant capital before a potential default occurs.