(Bloomberg) — As money pours into private credit and asset-based finance markets, Schroders Capital sees scope to invest in the housing and commercial real estate debt that banks have been shunning.
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“The most interesting opportunity is where there’s emotional bias and fear — and that’s in the commercial real estate market,” Michelle Russell-Dowe, co-head of private debt and credit alternatives, said in the latest Credit Edge podcast.
She added that the firm, part of Schroders Plc, is looking to invest where over-exposed regional banks are pulling back. The asset manager also likes residential real estate — including multi-family — and equipment finance sectors, she said.
Click here to listen to the full interview with Schroders’ Michelle Russell-Dowe
Private credit and asset-based finance are becoming more appealing to investors seeking diversification as public market valuations rise, according to Russell-Dowe. Investors with little exposure who feel they’ve missed out may jump in as the economy heads for a soft landing and interest rates fall.
“The longer the cycle persists, I think the more you will have people worried that they can’t wait forever for an entry point,” she said.
The world’s top asset managers see more growth ahead for private credit. Blackstone Inc. expects the market to balloon to $30 trillion, fueled by lending for infrastructure projects and greater participation from pension funds. Apollo Global Management Inc., pegs its potential at $40 trillion.
“We might already actually be at $30 trillion depending on what you do or don’t include in that market called private credit,” said Russell-Dowe.
Besides insurance companies, which are already very active in private credit, Schroders is seeing more interest from pension and sovereign-wealth funds. High-net-worth family offices are also making a push, Russell-Dowe said.
“We’ve just had disproportionate pressure in money coming after risk assets,” she said. “That’s one of the principal reasons why people look to private debt — because the public markets are so tight and valuations are so high.”
On the podcast, Russell-Dowe also discusses:
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Convergence between private and public debt, and how the former will continue to pay more as investors are compensated for lack of liquidity
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The outlook for secondary market liquidity, including whether individual private debt investments will eventually be traded
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The impact on borrowers and investors of monetary policy normalization
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Risks to the economy from lower-income consumers, if labor demand falls
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