Private Credit Risks: What’s Material And What’s Noise

Private credit is seeing pockets of stress, but it’s not a system-wide problem, says Scott Henshaw, Vice President and Director, Private Markets with TD Asset Management. He joins MoneyTalk to discuss how investors need to focus on the fundamentals and know what they own.

Transcript

Greg Bonnell: Private credit concerns have increasingly been on investors’ radar. But is this just a case of a few bad apples, or is there a systemic risk at play? Joining us now to discuss, Scott Henshaw, VP and director for private assets with TD Asset Management.

Great to have you on the program, first time we’ve had you here.

Scott Henshaw: Great to be here, Greg.

Greg Bonnell: It’s a big topic. That’s why I want to tap your expertise on this. Let’s talk about private credit. Is the whole private credit industry affected by all this?

Scott Henshaw: Yeah, look, there’s no doubt there’s tremendous noise out there right now. We’re getting hit with a lot of questions from both retail and institutional investors. And there’s perhaps some reasons behind that that are worth exploring. But to talk about what the real cause or the root cause of this is, I want to go to a certain area of the private credit industry. And that’s the business development corporations.

So BDCs, or Business Development Corporations– that’s a US structure. It’s generally invested in by retail investors. And it has a couple of more legacy-type characteristics. That means a bit of leverage that can exacerbate some of the swings we see in the underlying loan portfolio. It also has some of the valuation or governance features– a little on the legacy side, where maybe the manager is doing their own valuations.

So, what the result has been– and a lot of capital was raised into these