Private Credit: KBRA-Rated Private Equity and Private Credit Firms Remain Resilient Despite Challenging Environment

KBRA believes that alternative asset managers focused on private equity (PE) and private credit (PC) strategies are among fundamentally stronger asset classes, owing to their resilient business models that enable these financial institutions to better navigate more challenging conditions. We expect this to remain true in the current operating environment which includes high interest rates, persistent inflation, weaker economic performance, and regulatory changes. Although fundraising and investment exits can be pressured in a weakening economy, fee-paying assets under management (AUM) are not susceptible to redemption or net asset value (NAV) risk, given that funds are predominantly closed-end with long life spans. Management fees, which typically are based on committed capital or invested capital at cost, are quite resilient and predictable for well-established PE- and PC-focused managers. In addition, most firms benefit from dry powder that can be deployed during a downturn and…