Elevated interest rates are creating a more attractive backdrop for disciplined private credit investors, even as parts of the sector continue to work through liquidity pressures and structural adjustment, according to a report by CNBC citing a senior executive at Man Group.
Kevin Marchetti, chief investment officer of the firm’s US direct lending business, said the current environment is improving risk-adjusted returns for lenders focused on the core middle market, despite what he described as ongoing “growing pains” across the broader asset class.
Speaking at the SuperReturn International conference in Berlin, Marchetti said underlying credit fundamentals in Man Group’s core strategy remain resilient, with sponsor-backed borrowers in defensive sectors continuing to show relatively low levels of default, loss and non-accrual activity versus long-term averages.
He added that tighter documentation standards and stronger covenant structures are helping support portfolio stability, particularly in institutional-quality transactions.
At the same time, Marchetti pointed to higher base rates as a key tailwind for floating-rate lending strategies, noting that elevated benchmarks are translating directly into higher yields across direct lending portfolios. With inflation still above target levels and monetary policy expected to remain restrictive, he suggested the environment is likely to sustain attractive income generation for lenders.
The comments come amid renewed scrutiny of liquidity conditions in private credit markets following recent moves by major asset managers to manage redemption demand. Firms including Blackstone have introduced limits on withdrawals from flagship vehicles, while Partners Group has also flagged potential constraints on investor redemptions in certain strategies.
These developments have reignited debate over the suitability of semi-liquid structures for inherently illiquid credit exposures, particularly those distributed to a broader retail investor base.
Marchetti characterised these pressures as a normal phase in the evolution of the asset class rather than a systemic issue, arguing that some investors underestimated the illiquidity profile of underlying loan portfolios during periods of rapid product growth.
He also cautioned that underwriting discipline and portfolio construction decisions made during the low-rate era will remain an important differentiator in performance as capital structures face renewed stress in a higher-for-longer environment.
According to Marchetti, the combination of higher financing costs and slower growth conditions will increasingly test borrowers refinanced during the ultra-low-rate period, potentially widening dispersion across managers depending on credit selection and risk discipline.
Overall, he argued that while liquidity management challenges persist in parts of the market, the current rate environment is ultimately supportive for traditional floating-rate direct lending strategies focused on institutional borrowers and conservative underwriting standards.
