GIC urges caution over private credit
One of the world’s largest sovereign wealth funds has sounded the alarm over the rapidly expanding realm of private credit, write Arjun Neil Alim, Haohsiang Ko and Will Schmitt.
Singapore’s GIC sovereign wealth fund has raised concerns around non-bank lending due to shrinking returns and the market’s lack of experience of a sustained downturn.
GIC, which oversees about $800bn of assets for the city state, has long been a big player in global private equity and real estate.
“We are now at a part of the cycle where we feel that spreads are a lot tighter [and] valuations are also higher,” said Bryan Yeo, GIC’s chief investment officer. “Hence, we are raising the bar in terms of further deployment into the private credit space.”
Yeo highlighted the market’s lack of experience of a major downturn as a source of potential concern. “In hindsight, we haven’t really seen a major credit default cycle [in private credit],” added Yeo — excepting what he called a “shortlived spike” during the Covid-19 pandemic.
His comments are the latest in a series of warnings about the risk of investors rushing into the rapidly growing private credit sector in search of higher yields, amid a cooling of the private equity market and increased equity volatility.
Private credit has boomed in the past decade as tighter regulations since the 2008 financial crisis have increasingly stopped traditional banks from lending to riskier companies. This has created an opportunity for “alternative” players, including groups such as Blackstone and Apollo Global Management.
GIC is not alone. Jamie Dimon, head of JPMorgan Chase, has repeatedly warned about the risks in private credit, cautioning that the asset class could become a “recipe for a financial crisis” if mismanaged.
But as Gillian Tett notes, JPMorgan has also raised its allocation to private credit this year from $10bn to $50bn. Its rivals are rushing into this space, just as US President Donald Trump seeks to open the asset class to pension funds and retail investors.