Latest / Look Forward / Partner Perspectives: Inside the Forces Driving Resilience and Expansion in Private Markets | Look Forward Ep. 31

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Partner Perspectives: Inside the Forces Driving Resilience and Expansion in Private Markets | Look Forward Ep. 31 · Look Forward

0:05
Welcome to Partner Perspectives, a thought leadership initiative from S&P Global that
0:11
brings leading institutions together to examine the trends shaping global markets
0:17
and deliver forward-looking analysis that helps market participants navigate
0:21
uncertainty, identify opportunities, and anticipate what's ahead.
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This miniseries within the Look Forward podcast spotlights our
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first volume, produced jointly with Vanguard, entitled Partner
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Perspectives: The Future of Capital Markets, Unlocking Potential Ahead.
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Across three episodes, we explore the key themes at the heart of this
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research, including shifts in global market structure, index diversification,
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fixed income resilience, and the evolution of private markets.
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Leaders from S&P Global and Vanguard alike discuss what these changes could
1:02
mean for investors, institutions, and the broader market ecosystem.
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In our first episode, we're exploring the formidable forces that are driving
1:12
both resilience and expansion across the full spectrum of private markets.
1:18
Private equity and private credit have transformed global financial
1:22
markets, attracting a broadening investor base that spans global pension
1:27
funds and sovereign institutions to insurance companies, wealth managers,
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retail savers, and beyond, and reshaping such investors' portfolio
1:36
construction and diversification.
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Against a backdrop of elevated borrowing costs and constrained exit
1:43
opportunities, the key to unlocking the next stage of growth lies in advancing
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transparency and data-driven insights.
1:52
I'm joined by Bill Stout, head of Private Market Strategy at Vanguard,
1:57
to discuss the optimistic but measured outlook for private equity.
2:01
Although private equity investments face several near-term challenges,
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Vanguard's research shows that successful stakes entailing discipline,
2:10
diversification, and flexibility with liquidity and rigorous manager
2:15
selection may deliver outperformance over public equities in the coming decade.
2:20
Then we'll hear S&P Global's 360-degree perspective on the
2:25
state of play for private credit.
2:28
Considering that while private equity laid the foundation for investors
2:32
stepping into private assets, private credit has seen the biggest increase
2:36
in allocations and investment flows since the beginning of 2020.
2:42
S&P Global Ratings' Evan Gunter and S&P Global Market Intelligence's
2:46
Ilya Howerhof's research explores how innovation is a hallmark
2:50
of private credit's evolution.
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Let's get started.
2:55
We're here to talk about Vanguard's market outlook for private equity, but
2:59
before we look forward, it's essential to understand how we've gotten here.
3:04
What have been the biggest shifts in capital formation and market
3:08
dynamics over the last decade?
3:12
Yeah, look, this is a, a, a, a very popular topic as, you know, the private
3:17
equity markets have, have grown so tremendously over the last decade, and,
3:21
and if you look back even further, the growth is, is, is incredibly impressive.
3:27
And I think that has to do with how really capital formation has evolved.
3:32
If you step back, you know, 10 years, but then go even further, and I'm gonna
3:36
turn the clock back all the way to when I joined the industry back in 1996.
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At that point, there were over 8,000 publicly traded
3:45
companies in the United States.
3:47
Today, it's less than half of that.
3:50
The reason being is that companies are able to raise growth capital
3:54
outside of the public markets through venture investing, growth equity
3:59
investing, private equity funds.
4:02
And so what you're seeing is this trend of companies staying private much longer.
4:07
You know, on average now, it's roughly 14 years versus, you know, 25 years
4:13
ago, it was about four to five years.
4:15
A decade ago, six to seven years.
4:18
So you're seeing this evolution in terms of, you know, capital formation.
4:22
So you've seen this huge growth, about 3X over the last decade, from
4:26
about $3.5 trillion to almost $10 trillion in private equity alone.
4:31
There's been a significant shift also in terms of, you know, really who's raising
4:36
and deploying that capital and making those investments to a major concentration
4:40
in some of the largest private markets firms in the world, controlling
4:44
a lot of that capital formation.
4:47
I'd say the last, you know, major structural shift is, is, is part of this.
4:53
You're now seeing this true democratization of access to private
4:57
markets and, you know, a, a big uptick in terms of wealth firms
5:02
offering this to individual investors, and that's caused this massive
5:06
evolution in terms of vehicles for accessing private markets more easily
5:12
That historical perspective provides strong contextualization for the near-term
5:17
challenges to private equity investments.
5:21
But what are the biggest risks to the asset class right now?
5:25
And what strategies have you seen managers deploy to navigate
5:29
these current market dynamics?
5:33
Well, you know, look, I, I, I think outside of the typical economic risks
5:37
that, that come and go, um, really, I think what's happened over the last
5:43
really five years in particular is that, you know, a lot of these private equity
5:47
investors who've relied on, on cheap debt, um, you know, that's no longer available.
5:54
So, you know, as interest rates have ticked higher, it's gonna make it much
5:58
more challenging for a lot of these private equity managers to earn an
6:01
attractive return on that capital.
6:04
So it's no longer relying on cheap debt, in, in fast exits, uh, in
6:10
multiple expansion, but, but really now a prioritization around Better
6:15
underwriting, improved operations, uh, more creative liquidity management.
6:20
That's really where managers need to focus going forward.
6:23
Um, you know, I think it's really these elevated borrowing costs
6:26
that, that, that have constrained managers in a number of ways.
6:30
Um, it's made it a bit more challenging for them when they underwrite
6:33
these investments to find an attractive, uh, entry and exit point.
6:38
Also, you've seen exit markets slow down or tighten up altogether over the past
6:44
couple of years, and that's making it very difficult for managers to really monetize
6:48
a lot of these investments, either through, you know, it could be strategic
6:51
acquisitions or, or public listings.
6:55
Um, and, and so it's really, you know, been this interesting convergence of,
6:59
of trends evolving, but one of the benefits is a, a true secondary market
7:05
has evolved over the last decade.
7:08
And so this secondary market is providing a lot of additional flexibility for
7:11
both, uh, GPs as well as LPs to manage their liquidity, manage their asset
7:17
allocations, and, and really help them with managing that deployment
7:21
of capital into the private markets.
7:23
Given that markets are cyclical, how does performance differ between
7:28
public and private equities?
7:31
Well, I mean, the obvious is that, you know, you don't have the daily
7:34
valuations in, in private markets.
7:37
Um, so you have this difference in terms of the liquidity, the valuation
7:41
methodologies, leverage, and then back to the, you know, sort of timing of
7:46
exits, which can cause a, you know, a, a big difference in terms of the,
7:50
what the experience is for an investor in publics versus private equity.
7:54
Um, you know, historically, private markets or private equity in
7:58
particular has outperformed public equities by 200 to 400 basis points
8:03
a year over a longer-term horizon.
8:06
Um, you know, you've had 8% to 10% expected returns out of
8:10
public markets, 10% to 14% longer term out of private equity.
8:16
And some of the drivers of that excess return are around that
8:19
illiquidity premium that you're getting from, from private equity.
8:21
It's leverage, but it's also operational improvements, which are
8:25
be- which are becoming more and more important today, active governance.
8:29
Um, but, you know, there's massive dispersion, and so that's something
8:33
we spend a lot of time talking about in, in private markets
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as compared to public markets.
8:38
It really is around not just, you know, being in the right asset classes, but, um,
8:43
it, it's really about manager selection.
8:45
So that's really sort of where the vision, you know, or, or concerns
8:48
shift to is manager selection.
8:51
Vanguard's outlook is appropriately titled Optimistic but Measured
8:55
for Private Equity, which I love.
8:58
This feels like a lighthouse of opportunity in the clouds of
9:01
uncertainty in today's markets.
9:04
So let's get into this positive perspective.
9:07
In your research, you expect that high quality managers with reasonable
9:12
fees will deliver high single digit annualized returns, outperforming
9:17
public equities over the coming decade.
9:21
Bill, what factors will drive this growth?
9:25
Yeah.
9:25
Well, well, we are, we are optimistic, as you, as you know, Mali, uh, but,
9:29
but we're very measured, um, because the return drivers are, are evolving.
9:33
You know, as I noted earlier, no longer can managers just rely on,
9:38
uh, you know, really, really cheap, uh, cheap interest rates, you
9:41
know, uh, low cost of borrowing.
9:43
You know, today, it, it's really in this environment, you know,
9:47
disciplined underwriting, really understanding what, what you're
9:50
paying for the asset is critical.
9:53
But also, what's becoming more and more important, and this, uh, you
9:56
know, is even prior to interest rates reaching record lows a few years
10:00
ago, strong operating capabilities, what's really differentiating
10:04
managers' performance today.
10:06
So, you know, we believe that if you have the right underwriting abilities,
10:11
you can, you can find managers with those capabilities in-house.
10:16
You know, valuations still matter, but you know, private companies
10:19
continue to trade at more attractive multiples than public equities.
10:23
Mm-hmm.
10:23
So we think that supports the case for the private equity illiquidity risk premium.
10:28
But if we can find managers that really have that strong operating
10:31
capability, they can deliver that alpha, uh, above the public equity markets.
10:35
But I'd say you sort of, sort of put together the opportunity
10:38
in private equity today.
10:39
It's not about financial engineering or market timing,
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it's about disciplined execution.
10:44
And high quality managers really can grow earnings, manage costs, and deploy
10:48
capital thoughtfully, um, and those are the ones that are best positioned.
10:53
Now taking this to an existential perspective, why is manager
10:58
selection and diversification across strategies, vintages, and regions
11:04
important to this outlook and outcome?
11:08
Yeah.
11:08
That's, look, the, the one theme that I think I mentioned a couple times
11:11
already is that- Mm-hmm … it, it's not just about the asset class selection
11:16
and, and deploying, but it's really about who you're, you're investing
11:21
with and, and how consistently.
11:23
Um, you know, dispersion in private equity returns remain quite wide,
11:29
um, and, and really in line with where they've been historically.
11:32
But you know, really sometimes I think investors need to understand and reframe,
11:37
you know, where has, have private equity returns been over the last decade.
11:40
So, so looking at just 10-year IRRs over the last decade, 95th percentile,
11:46
so top performing managers, have returned on average 38% per year,
11:51
so significant outperformance.
11:54
Whereas if you look at the other end of the spectrum, the, the bottom performers
11:58
have produced in the 5th percentile a negative 16% per year outcome.
12:04
So that's a significant difference that you just don't see
12:06
typically in the public markets.
12:08
Mm-hmm.
12:09
Um, if you, if you sort of look at what's driving that, again, it's
12:12
that deal sourcing, it's operational execution, and it's the ability to
12:16
exit across, across these managers.
12:19
But a critical part of this as well, it's not just that manager
12:22
selection, it's, it's diversification.
12:24
So you need to be dis- disciplined on that diversification by strategy.
12:29
You can't just be in one single strategy.
12:30
I think today what's hitting the headlines a lot is around software exposure.
12:35
You need to be diversifying by vintages, so the year in which you allocate can
12:39
be a very different experience from prior years And then also diversifying
12:44
by regions because each region has their own factors impacting their economic
12:49
growth and capital market conditions.
12:52
So i- i- it's really that, again, disciplined manager selection, finding
12:56
those best-in-class managers with those strong underwriting and operational
13:00
capabilities, but then, you know, being disciplined to executing and
13:05
sticking to your strategy that's, again, diversified by, by vintage,
13:10
by strategy, and by geography.
13:12
That's how you build a successful private equity program.
13:15
Mm-hmm.
13:17
While the private equity industry has matured, the private market
13:20
overall is innovating at scale, speed, and with sophistication.
13:26
More companies are staying private for longer, and some valuations are
13:30
skyrocketing with astronomical scope.
13:33
Your research shows that valuations for private companies are attractive
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compared to public markets.
13:39
We're also seeing the popularity of secondaries, like we talked
13:42
about, and other multi-fund or multi-manager vehicles rise.
13:47
So in your view, what else is next on the horizon?
13:51
Well, look, I think in addition to what you noted about the secondary market
13:55
continuing to evolve, which, which we completely agree with, I think two
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other themes that maybe you hear a little bit about one, less about the
14:05
other, one is around broader access.
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So I know there is that theme that we talked a little bit about.
14:10
Wealth investors are now allocating to the private markets in a more, um,
14:17
meaningful way, and, and private markets are becoming, you know, more of a core
14:22
consideration for their asset allocation.
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And so the vehicles have evolved to make in, you know, investing and
14:28
access, uh, more in line for what a individual investor really requires,
14:33
whether it's your tax reporting, ability to really allocate and
14:37
deploy in a more consistent manner.
14:39
Uh, the ability to have some limited liquidity in, in these products is
14:43
also important to individual investors, but the risks are also much higher.
14:48
And so I think that's something that, that you really need to focus on as
14:53
access expands into the wealth channel.
14:55
But then I'd say the other one, which is less talked about, is cost discipline.
15:00
And, you know, even though these markets are maturing and you've seen this massive
15:04
growth in private markets, fees haven't come down in line with the growth, and
15:10
that's something where, where we see an evolution coming over the next decade.
15:14
And, and we at Vanguard hope to play a part, um, in compressing those
15:18
fees to investors over time as well.
15:22
Bill, thank you so much for your time.
15:24
It's been such a pleasure and a privilege to have you on the Look Forward podcast.
15:28
Is there anything that we haven't discussed that you'd
15:30
like to share with our listeners?
15:33
Yeah.
15:33
So, you know, look, I, I think there's one thing in, in particular
15:36
when we talk about democratization and access to private markets, these
15:40
investments aren't for everyone.
15:42
Mm-hmm.
15:43
And so when, when considering an allocation to private markets, really
15:46
understanding the risks, including the illiquidity risk as well as the active
15:51
management risk, that's something that I think we as an, really as an
15:55
industry need to do a better job of educating investors before they're
15:59
allocating to these types of products.
16:02
Thank you for looking forward with us, Bill.
16:04
See you next time.
16:05
Thanks, Molly.
16:06
Private equity, secondaries, venture capital, and real assets have become
16:11
integral components of multi-asset portfolios for a broadening investor
16:16
base, and private credit is now playing a bigger part of this transformation.
16:23
These assets present new challenges for sound risk management practices
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as private assets are less liquid, more opaque, and frequently complex.
16:34
But this is quickly changing.
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Investors are increasingly seeking objective benchmarks, standardized
16:41
reporting, and tools that support clear and consistent analysis, attributes
16:46
long associated with public markets.
16:50
Here we have two of S&P Global's private market specialists, Evan Gunter, Director
16:56
of Private Markets Analytics at S&P Global Ratings, and Ilya Hauerhoff,
17:01
Director of Quantitative Research and Solutions for Private Markets
17:05
at S&P Global Market Intelligence.
17:08
Thank you both for joining the Look Forward podcast.
17:13
Thanks for having us here, Molly.
17:15
Great to be with you.
17:18
Super.
17:19
So let's get started.
17:20
Evan, I'd love to begin the conversation with you.
17:24
The focus for this episode is on the forces driving resilience
17:28
and expansion in private markets.
17:31
Let's get started with the big picture before we get
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into the details and dynamics.
17:36
How has the private credit market adapted over the last decade?
17:40
What exactly laid the foundation for the growth and innovation that we're
17:43
seeing in the asset class today?
17:48
Thanks, Molly.
17:48
So let's take a step back and talk about private markets more broadly.
17:54
First of all, you've got private companies, and these private
17:57
companies are getting bigger.
18:00
So a decade ago, we thought it was a big deal if a private company was
18:04
reaching a billion-dollar valuation.
18:08
They were so rare we called them unicorns.
18:11
But those unicorns have given rise to decacorns, which are the private companies
18:15
with more than a $10 billion valuation.
18:19
And then those decacorns have given way to hectocorns, um, which I'll
18:24
just refer to as private companies with more than $100 billion valuation.
18:30
So who are some of these private companies with more than $100 billion valuation?
18:36
We've got OpenAI, you've got Anthropic, you've got SpaceX.
18:40
These are companies that we read about in the daily news.
18:43
They're household names, and they're private.
18:47
What we're seeing is that with as much capital as is flowing into private
18:52
markets, private companies can get bigger and stay private for longer
19:01
Now, part of the private markets is also made up of private companies
19:05
that are funded with private debt.
19:08
15 years ago, banks were adopt-adapting to a post-GFC financial regulatory
19:16
environment, and they were pulling back from some types of lending, including
19:20
some of their corporate lending.
19:22
Meanwhile, alternative asset managers were growing.
19:25
They had cash to deploy as investors were increasing their
19:29
allocations to alternatives.
19:31
Interest rates were low, and this was supporting an active market
19:35
for LBOs to take companies private.
19:39
Private credit direct lenders then were able to carve out a niche providing
19:43
middle market debt capital that was often serving as a source of funding for those
19:48
LBO transactions of private equity firms
19:54
In the lower for longer rate environment, this growth accelerated, and then it
19:59
took off after the COVID pandemic.
20:02
With more assets to manage, the private credit providers expanded the
20:06
scope of their lending to asset-based finance and to more types of credit.
20:12
So as we've seen private credit grow, we've also seen it expand
20:17
to more parts of the market.
20:19
Thanks, Evan.
20:19
That history certainly provides important context for us to understand
20:23
current conditions for private credit.
20:25
The past six years or so, as I mentioned in the introduction to this episode,
20:29
have seen the biggest increase in allocations and investment flows, and
20:32
private credit achieved annual returns of almost ten percent without having
20:37
any full years of negative returns, according to S&P Global's research.
20:42
And against this backdrop, Ilya, your team's insights find that the five
20:46
largest managers represent a sizable portion of the private credit market.
20:51
My question is for you, what is the state of concentration risk in the market
20:55
right now, and what are your expectations for growth in credit AUM with these
21:00
prominent players looking forward?
21:04
Thanks, Molly.
21:05
Yeah, while private equity laid the foundation for investors stepping into
21:09
private assets, it's private credit that has seen really the biggest increase
21:13
in allocations and investment inflows since the beginning of twenty-twenty.
21:18
However, the private credit market, uh, became really highly concentrated
21:23
with the five largest players, Apollo, Blackstone, Ares, KKR, and Carlyle,
21:27
controlling a significant share of the market, which is currently
21:31
estimated to be over three million AUM.
21:33
Um, as of the third quarter of twenty-twenty-five, our analysis shows
21:37
that their combined credit assets under management exceeds two trillion.
21:42
Um, based on our visible alpha consensus estimate, this concentration
21:47
is expected to, uh, intensify, with the top managers' credit AUM projected
21:51
to grow at a compound annual rate of nearly thirteen percent over the next
21:56
four years, reaching approximately three-point-three trillion by the
22:01
third quarter of twenty-twenty-nine.
22:03
To put this into perspective, a recent Morgan Stanley study has estimated private
22:07
credit to become a five-trillion market by twenty-twenty-nine, and the top five
22:12
players, uh, would manage nearly seventy percent of it, according to our estimates.
22:21
Thanks, Ilya.
22:22
This growth is absolutely dependent on private credit's continued innovation,
22:27
and we already know that adaptation is a signature feature of private credit,
22:32
which continues to reinvent itself.
22:34
Evan, you touched on this a bit before, but what trends are you
22:37
seeing take shape as private credit expands its traditional footprint into
22:42
asset-backed finance, securitizations, fund finance, and infrastructure?
22:49
Thanks, Molly.
22:50
It's not just the types of lending that we're seeing expand in private
22:54
credit, but it's also the investor base itself that's expanding.
22:59
Uh, Ilya was just mentioning, uh, that estimate that the private credit
23:04
market could grow to $5 trillion.
23:07
That's not just based on the same investors deploying new money.
23:11
That also includes new investors coming into this market, uh,
23:15
and investing new capital.
23:18
New investors include retail as well as institutional investors.
23:23
And on the institutional side, insurers have been, uh, a growing
23:28
part of this market, a new growing part of this market for investors.
23:33
These institutional investors have led to a demand for private credit
23:37
investments that were backed by hard assets or assets that provided contractual
23:43
cash flows, and that's contributing to private credit's expansion beyond
23:48
middle market corporate direct lending.
23:50
And this expansion is going to infrastructure, to fund finance, to
23:55
asset-based finance, like you mentioned, uh, and also to large corporates and
24:00
even more parts of the credit market
24:05
One thing that changed is that alternative asset managers grew
24:09
large enough, with enough size and enough scale, that they could build
24:14
vertically integrated platforms that span from origination to distribution.
24:20
They can originate financing for assets that range broadly from royalties to asset
24:25
leasing, as well as loans for aircrafts, containers, timeshares, and even more
24:31
esoteric assets like music rights.
24:34
Asset-based finance is finding ways to fund many diverse types of assets.
24:41
And there's also some overlap between asset-based finance and fund finance.
24:46
Just look at the growth of multi-strategy funds from alternative asset managers.
24:51
These funds can seek opportunities and relative values, whether they're
24:55
in fund finance, asset-based finance, or elsewhere, and this growth is
25:00
picking up, and it's also blurring the lines, uh, between, uh, fund
25:05
finance and asset-based finance.
25:08
ABF has been part of credit investment strategies for over a decade, but what I
25:13
found very interesting is that S&P Global market intelligence data from the earnings
25:17
calls of more than 50 private equity firms shows that mentions of asset-based finance
25:23
surged sevenfold between 2021 and 2025.
25:29
And on top of this, recent headlines have christened ABF as private
25:32
credit's next big thing, the next chapter, and the next frontier.
25:37
So with this in mind, Ilya, what are your expectations for the five largest
25:42
managers, as you mentioned, that's Apollo, Blackstone, Aries, KKR, and
25:47
Carlisle, to approach asset-based finance within their credit portfolios
25:51
through the remainder of this decade?
25:55
Thanks, Malin.
25:56
Yeah, indeed, uh, interesting finding, right?
25:59
Uh, as those executives on those earnings calls, uh, continuously
26:03
and increasingly mention asset-based finance, uh, talking about it because
26:08
it's a new shiny thing, right?
26:10
That they wanna showcase to the investors.
26:13
And I would, I would expect them to keep leaning into the asset-based finance
26:17
as the primary growth driver within the credit portfolio because the strategy
26:21
is already scaling quickly with, uh, asset-based finance AUM among the top
26:25
five managers you mentioned already, uh, nearly five hundred billion as of
26:30
Q3 twenty twenty-five, and has grown twenty-five percent year over year.
26:35
Uh, and it's projected to, uh, compound at twenty-one percent
26:39
annually going into twenty twenty-nine.
26:42
Uh, and on that trajectory, ABF, uh, or asset-based finance share of the credit
26:47
portfolio is expected to rise from currently twenty-four percent to, uh,
26:51
twenty-nine percent by twenty twenty-nine, uh, with the total ABF, uh, AUM surpassing
26:57
one trillion, um, across those firms.
27:00
A big part of ABF appeal is the greater transparency in the underlying assets,
27:05
which helps investors, uh, you know, more, uh, clearly assets collateral
27:10
quality and structure specific risks and builds trust in, in the vehicle.
27:14
And from the asset owner's perspective, ABF can improve liquidity, you
27:18
know, by financing pools of assets, enabling more flexible capital
27:22
management and easy access to funds.
27:24
Um, tailwinds that reinforce its attractiveness, and it takes a large
27:29
share of the private credit portfolios
27:34
So we've talked extensively about the opportunity side of the spectrum.
27:38
I think it's time to realign our focus to the risk angle.
27:42
Evan, you're critically analyzing credit risks day in and day out in your role
27:46
in S&P Global Ratings, and Ilya, you're developing extraordinary tools to dev-
27:51
to assess market and company sentiment on such topics in your, across your
27:55
team at S&P Global Market Intelligence.
27:58
As private markets generally, and private credit specifically, continue
28:02
to mature, adapt, and innovate, I'd love to know from both of your perspectives
28:07
what, in your view, should market participants be watching out for?
28:12
Evan, we could start with you.
28:15
Thanks, Molly.
28:17
You know, there are certain risks that are just part of the private credit market.
28:21
These include liquidity, transparency, and complexity.
28:25
For liquidity, the underlying assets that a private credit manager holds, so that
28:32
direct lending loan, that private credit instrument, it tends to be illiquid.
28:37
There's not an existing secondary market for these instruments.
28:41
Uh, there are some attempts to start secondary markets for them, but it's
28:45
not to the extent, uh, that we have secondary markets for bonds or for
28:50
broadly syndicated leverage loans.
28:53
To match the liabilities of the funds with these illiquid assets, many s-
28:59
fund structures and many fund managers, uh, can limit investors' access to
29:04
redemptions, or they have closed-in vehicles that don't allow for redemptions.
29:11
For transparency, it's a private market.
29:14
We call it a private market for a reason.
29:16
You don't have the same level of systemic transparency and disclosure
29:21
that you have in public markets.
29:24
And for complexity, asset-based finance is an important part of the story of growing
29:30
complexity in the private credit market.
29:34
Private credit is expanding into new types of credit.
29:37
Asset-based finance is one of them.
29:38
Digital infrastructure, large corporates is another, and this is leading to
29:43
growing complexity in the market.
29:46
It's also leading to growing complexity in the instruments themselves and in
29:51
the interconnections between entities and between parties in this market.
29:58
With liquidity, transparency, and complexity as risks that are inherent
30:04
in the private credit market, an investor must enter the market with
30:08
eyes open to these risks, and also with an understanding of their own
30:13
risk tolerances and to gauge what exposure level is correct for them
30:22
Ilia, do you have a similar perspective or an entirely different view?
30:27
Um, pretty much aligned with what Evan was saying.
30:29
I would say that as private credit continues to grow, mature, and integrate
30:34
with broader financial markets, attention should shift from identifying basic
30:39
risks to understanding how those risks transform under different conditions.
30:44
Uh, during periods of economic stability and robust capital
30:47
inflows, vulnerabilities may quietly accumulate, remaining hidden until
30:52
external pressure exposes them.
30:54
Um, competitive dynamics and strong investor demand can sustain asset prices
30:59
and obscure early warnings, signs of financial strain, uh, among borrowers.
31:04
Um, this can result in risk emerging only after, you know, a broader economic
31:08
shift or performances declines rather than being immediately apparent.
31:13
And additionally, the influx of new capital and participants reshaping,
31:17
you know, the market practices.
31:19
Lenders may gradually relax the lending criteria, such as increasing
31:23
leverage or reduce, uh, protective covenants, um, in response to the
31:28
needs to deploy funds, which can, you know, amplify the risk over time.
31:33
Um, so the movement into less established areas of private credit
31:36
brings new challenges, uh, as with asset-based finance, for example.
31:41
Uh, these segments often lack comprehensive historical data or
31:44
proven risk assessment frameworks.
31:46
Um, and moreover, as private credit becomes more intertwined between
31:50
bankers, insurance, institutional investors, and other players, uh,
31:54
you know, the stress spread across this financial system increases.
31:58
Um, investors in private markets must prioritize access to detailed
32:03
and, uh, up-to-date information to effectively monitor and manage
32:07
those risks, especially when market conditions becomes challenging.
32:10
Um, this approach helps really bridge the transparency gap and supports better
32:15
and faster data-driven decision-making
32:20
So with all of this in mind, our last question, as appropriate for the Look
32:26
Forward podcast, is forward-looking.
32:29
I'd love to know what structural shifts need to come into fruition for
32:34
private market allocations to align with long-term objectives and risk
32:39
budgets to flexibly fit the needs of the myriad of investor profiles and
32:44
unlock the future growth that we've discussed in this conversation today?
32:50
Sure.
32:51
Thanks, Molly.
32:52
So between the risks of liquidity, transparency, and complexity, I, I
32:58
think I'm, uh, on Ilya's team with this one, that transparency could be
33:03
the key to unlocking future growth.
33:06
I, I like that Ilya was mentioning the investors' need for access
33:12
to details, uh, for up-to-date information on their investments.
33:17
I-- Yeah, I, I agree with this.
33:19
Transparency is a key to unlocking future growth in this market.
33:24
In the public credit markets, you have audited financial statements, you've
33:28
got market prices, and you often have public ratings for instruments.
33:32
But that's on the public market.
33:34
In the private market, uh, you don't have such systemic tools of transparency
33:40
and s- such systemic sources of a look-through across the whole market.
33:46
In the private market, I, I think if we can get new tools and new standards
33:51
to support clearer reporting and more transparent communications of risks
33:56
and returns, it would help to add to the level of transparency and also
34:01
help to add to the level of confidence for investors within the system
34:09
Quite the mic drop moment to end on, but Ilija, if there's any
34:11
other thoughts on transparency, I'd love to give you the last word.
34:16
Yeah, no, transpa- transparency, uh, can only be unlocked with the
34:20
relevant data, right, which, uh, investors and market participants
34:25
will have access to more timely data.
34:27
So building kind of this, uh, stronger infrastructure centered on
34:31
transparency and standardization, this will empower investors to confidently
34:35
size, compare, and monitor exposures.
34:38
And, um, you know, at S&P Mo- uh, Global Market Intelligence, we see the
34:42
next stage of growth is directly tied to improving transparency in private
34:46
markets participants across asset classes and providing standardized
34:50
but deeper, more granular performance benchmarks, including the differentiated
34:54
strategies like asset-based finance, so allocations can be assessed against
34:59
long-term goals and risk budgets
35:04
Well, you heard it here first, folks.
35:06
Evan, Ilya, thank you so much for your time.
35:08
Thank you so much for joining the Look Forward podcast.
35:11
Is there anything that we haven't discussed today that you would
35:15
like to share with our listeners?
35:20
Uh, first I'll start off just, uh, wanna say, Molly, thank
35:23
you for having us as a guest.
35:25
Uh, it's-- Like we're always trying to bring new insights to the market, uh,
35:30
through private markets analytics, uh, often using data that Ilya and his group
35:36
provides through market intelligence.
35:38
Uh, so being able to come here, uh, on a podcast like this and talk about our
35:43
research and what we're finding and what we're seeing in the market, uh,
35:46
it's a great opportunity to, uh, help us share this with a broader audience.
35:50
So, uh, so thank you so much for hosting us.
35:55
Yes, I would like to add, first of all, thank you, Molly, for, for hosting us
35:58
as well, and, um, as Evan mentioned, right, so the quantitative research
36:03
and solutions team within the S&P Global Market Intelligence, um, we,
36:08
we cover all, uh, asset classes and provide in-depth data-driven research,
36:12
including private markets as well.
36:15
So for everyone who wants to read our latest publications, head to
36:20
Quantitative Research and Solutions S&P Global, uh, website, uh, or
36:25
just email us, uh, qrs@spglobal.com.
36:30
And I'm gonna piggyback on that one.
36:32
Uh, for additional research from Private Markets Analytics, you can go
36:37
to spglobal.com/ratings/privatemarkets.
36:43
As you've heard from Bill Stout, Evan Gunter, and Ilya Hauerhoff,
36:48
the key to unlocking the next stage of growth truly lies in advancing
36:53
transparency and data-driven insights.
36:57
This reinforces the clear message of our joint research, Partner
37:01
Perspectives: The Future of Capital Markets, Unlocking Potential Ahead.
37:06
This is a moment of real transition, an inflection point, and the opportunities
37:11
ahead won't be unlocked by any single participant acting alone.
37:17
Infrastructure, policy, data, and market practice will all need to evolve, and that
37:22
evolution will be shaped by collaboration.
37:26
That's what makes this partnership between S&P Global and Vanguard so important,
37:32
bringing together complimentary expertise to offer clarity in a complex world
37:38
with insights designed not only to inform but to help market participants
37:43
channel knowledge into action.
37:45
To learn more, read the full collection of research on spglobal.com.
37:51
I'm your host, Molly Mintz, and this is the Look Forward podcast.
37:55
Thank you for listening