Private credit stakeholders have “good reasons to rejoice” following the US Federal Reserve rate cut, EY has stated.
The Fed reduced rates by 25bps yesterday (18 December), in line with market expectations. This means that there have been 100bps of cumulative cuts since September.
However, the Fed has indicated that the pace of cuts will slow next year, with no more than 50bps expected across the whole of 2025. EY said that this policy should boost transactions in 2025 and lead to further growth for the private credit sector.
Read more: BlackRock predicts more performance dispersion in private debt
“In a context of high levels of dry powder, the revival of leveraged buyouts should be significant and that is good news for credit funds which never really stopped fundraising,” said Marie-Laure Mounguia, EY Luxembourg private equity and private debt partner.
“2024 private credit fundraising is expected to land at a higher level than the prior year, after the 2021 record year [with] close to $350bn (£278.67bn) raised.
“Consequently, capital deployments are expected to flood the market in the coming years.”
Meanwhile, a separate economic analysis by Nuveen noted that Fed policy has shifted giving way to more hawkish policy proposals.
Read more: Pension funds to increase private market allocations
“We continue to expect two more rate cuts next year, taking the policy rate to 3.75 per cent to four per cent,” said Tony A. Rodriguez, head of fixed income strategy at Nuveen.
“The exact timing and magnitude will depend on the incoming inflation and labour market data, as well as policy developments. Tariffs, immigration and tax cuts may push growth and inflation off target.”
Away from fixed income, Rodriguez said he sees opportunities ahead in asset classes that are more insulated from policy uncertainty, such as real assets.
“The revival of dealmaking is a positive sign for the alternative investment industry, but challenges remain,” warned EY’s Mounguia.
“Private credit players will have to keep an eye on borrowers, especially the most vulnerable ones to test their models in time of turmoil. No doubt that such a resilient asset class will find its own way to navigate this new macroeconomic environment.”
Read more: A golden source of data
