Wealth Outlook 2024 - Slow then grow

68 Wealth Outlook 2024 | Opportunistic Our top 10 high conviction potential opportunities 9. Private credit and structured debt securities Private debt is a rapidly growing asset class among institutional investors and has continued to prove its value in 2023. The Cliffwater Direct Lending Index reports annualized return to loan maturity returns 9.69% as of June 30, 2023 (primarily attributable to senior debt). Uncertainty has continued to limit the availability of syndicated loans to the largest, near-investment grade offerings, and banks have also largely remained on the sidelines with the prospect of expected stricter liquidity and capital requirements, particularly in the middle-market and in certain sectors such as technology. As a result, direct lenders are in high demand by private equity managers, driving new channels in the industry through nontraded business development companies, interval funds and tender offer funds.¹⁰ ¹⁰ Pitchbook as of June 30, 2023. For fixed income investors looking for more liquid public market opportunities, another asset class used heavily by qualified institutional investors (and for other suitable investors can also be accessed via a managed fund) is structured credit. With US mortgage rates jumping 7-8% for various maturities, it is possible for structured debt funds holding prime mortgage-backed securities to yield 6.5-7.5%with short to intermediate holdings. Yields have risen even more widely for investment grade commercial mortgage- and asset-backed securities. The pipeline of new loans becoming securitized at higher rates points to higher yields for suitable institutional and retail investors alike ( FIGURE 14-15 ).