Market volatility is a factor that keeps private debt fund managers awake at night for several reasons. Here are some potential reasons based on the available search results:
1. Risk Management: Private debt fund managers need to manage the risk of their investments, and market volatility can make this more challenging. As interest rates fluctuate and economic conditions change, the creditworthiness of borrowers can be affected, which can impact the performance of the fund.
2. Lending Standards: With so much investor interest in private debt, there is a concern that fund managers may start to lower their lending standards just to close deals and put money to work[2][4]. This can increase the risk of defaults and credit events, which can negatively impact the fund’s performance.
3. Portfolio Diversification: Private debt fund managers need to balance risk and return across different types of investments. Market volatility can make it more difficult to achieve this balance, as some investments may perform better than others during periods of volatility.
4. Liquidity Management: Private debt funds are illiquid, which means that investors’ funds can be locked up for 10 years or more[6]. This makes it challenging for fund managers to manage liquidity and ensure timely repayment of loans during periods of market volatility.
5. Investor Expectations: Private debt fund managers need to meet the unique portfolio objectives of their investors[5]. During periods of market volatility, investors may have different expectations for the performance of the fund, which can put pressure on fund managers to deliver results.
It’s important to note that these reasons are provided as a starting point, and private debt fund managers may have additional or more specific concerns based on their individual investment strategies and goals.
Citations:
[1] https://pe-insights.com/news/2021/09/28/seven-questions-future-of-private-debt-agnes-mazurek/
[2] https://www.washingtonpost.com/business/2023/08/01/private-credit-investors-should-beware-of-riskier-newbies/fc0fb594-30b1-11ee-85dd-5c3c97d6acda_story.html
[3] https://documents.nuveen.com/Documents/Nuveen/Viewer.aspx?uniqueid=7c9bcb1f-cae3-4190-82bf-36c1a2b70306
[4] https://www.bloomberg.com/opinion/articles/2023-08-01/private-credit-investors-should-beware-of-riskier-newbies
[5] https://www.pionline.com/TwinBrook-privatedebt23
[6] https://www.kitces.com/blog/private-debt-funds-returns-general-partners-fees-strategies-performance-risk/