Our keynote address at this week’s SuperReturn US Private Credit conference allowed us to share a reconsideration of the impact of rate hikes and quantitative tightening on capital markets and private credit. This special series will further develop that thesis.

For over a decade, including through Covid, the tide of capital has flowed mostly in one direction: into markets. That’s because since the Great Recession the Fed has kept interest rates low. Public credit, both loans and bonds, benefited from this support.

Private capital, particularly credit, has also enjoyed a one-way stream. With interest rates low, investors sought higher yielding investments while still retaining low risk. Private equity sponsors obliged by working closely with their relationship direct lenders to put their own LP money to work with a burgeoning pipeline of buyout financings.

From a credit perspective, structures and pricing became increasingly issuer-friendly as arrangers competed for lead deals. These erosions were rationalized because elevated purchase price multiples provided greater cash equity cushions below the debt.