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The IMF says the rapid growth of private companies could pose a risk to broader market stability.
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The “opaque'' portion of financial markets grew to $2.1 trillion last year.
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The IMF said rare valuations and uncertain credit quality were risk factors in this area.
The International Monetary Fund said in a blog post on Monday that the rapid rise of the private credit industry could ultimately threaten financial stability, given how little is actually known about it. Stated.
According to the group, lending to businesses is increasingly shifting from regulated banking institutions to less regulated companies such as private credit funds, making access to lending practices less transparent and increasing risk.
“The shift in lending from regulated banks and more transparent public markets to a more opaque world of private credit creates potential risks,” analysts wrote on Monday, adding that the sector's assets and He noted that capital exceeded $2.1 trillion last year.
And since the beginning of this century, its returns have skyrocketed, increasingly outperforming the S&P 500 Index and the MSCI World Index.
This industry emerged to provide much-needed financing to businesses considered too risky for commercial lenders. Despite the illiquidity, the market's rich returns, speed and flexibility attract investors, the IMF writes.
However, the sector is largely unsupervised and there are some worrying signs as more of the loan market share moves towards private credit.
“Evaluations are infrequent; credit quality is not always clear or easy to assess; the interrelationships between private credit funds, private equity firms, commercial banks, and investors are not always clear; “It is difficult to see how systemic risk could increase, given the
First, borrowers tend to be debt-laden companies that already rely on leveraged loans and public debt. This means the risk for borrowers increases as interest rates rise, with one-third of borrowers already facing interest costs that exceed their returns, the IMF said.
However, credit providers have not tightened lending standards because private credit is increasingly competitive with big banks and loans can be difficult to evaluate due to their infrequent transactions.
Not only may private credit standards be worse than they appear, but analysts may not fully understand how the sector interconnects with the broader financial system.
For example, banks may have more exposure to private credit than many realize, while pension funds and insurance companies are acquiring a larger stake in these assets. the IMF said. Meanwhile, new funds targeting retail investors are emerging, diversifying risk from Wall Street to Main Street.
Given these factors, private credit is likely to amplify the impact of each recession, one of the blog's authors said separately at a Brookings Institution event last week.
Fabio Natalucci said: “I don't think there is a risk to financial stability, but from a macro-financial point of view, given the size of the sector, we don't know how it will operate in a severe long-term recession.” said. Go to the industry news service “Pensions and Investments”.
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