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Private credit – a disaster waiting to happen

It has been over 10 years since the start of the global financial crisis, which means we are overdue another one.

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Indeed, analysts have been predicting a market correction for two years; now even the bulls are starting to make noises that market momentum will grind to a halt in 2018. Bank of America joined several of its Wall Street peers in November when it announced that it expects an end to the bull market rally in the second half of next year.

So, the rate at which pension fund and institutional investors are piling into private credit funds is alarming. According to Preqin, at the start of the third quarter of 2017, there were more than 300 private debt funds actively raising in excess of $130 billion in capital, with more than 60% of these funds targeting North America.

New funds are being set up by bankers leaving firms such as Deutsche Bank and HSBC in the US, as well as in Asia more recently – such as Tanarra Credit Partners, a group of former Credit Suisse bankers, led by investment banker John Wylie. His firm recently raised more than A$216 million ($165 million) for an Asia-Pacific credit investment fund, including a cornerstone commitment from A$60-billion pension fund UniSuper Management.

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