The liquidity pressures facing non-traded BDCs are effectively sidelining large chunks of capital in private credit, creating a less competitive deal environment after a relatively crowded few years in the space, according to John Cocke, deputy CIO for credit at Corbin Capital Partners.
Many of the evergreen funds facing liquidity challenges are expected to be “focused on managing liquidity and redemption requests for the foreseeable future,” Cocke said, making private credit “much more interesting” as deals and structures have already materially improved since Q4.
“This is the best time to have dry powder available to deploy since the ‘Golden Age’ of 2022-2023,” Cocke said, in an interview with PitchBook LCD.
Despite the wave of retail redemption requests, Cocke says that credit quality remains stable and that the withdrawals are more about fund structures than the underlying loan investments.
“We’re going through more of a stress test of these interval fund vehicles, and of these access points, rather than a real stress test of the asset class,” said Cocke.
Traditional closed-end vehicles may see enhanced returns vis-à-vis interval fund counterparts, he said, considering that interval funds offering quarterly repurchases may have to use more available capital to fulfill redemption requests, thus deploying less dry powder into the more attractive lending environment.
He likened interval funds facing heightened redemptions to closed-end funds that are past their investment period, since they’ll be forced to focus more on returning capital to investors than on “playing offense” and deploying capital into new deals.
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