Combining public and private credit systems presents complications
The world of asset management is witnessing a significant shift as the lines between public and private credit blur. This convergence is creating new opportunities and challenges for the industry.
The demand for talent with a unique skill set is on the rise. Asset managers now require professionals who can navigate portfolios containing both public and private credit instruments, manage hybrid portfolios, and underwrite illiquid assets. This versatility in investment, risk assessment, and liquidity management is becoming increasingly crucial in an industry that is adopting a more integrated approach to credit markets.
Firms are seeking candidates who can analyse, underwrite, and invest across the full capital structure and liquidity spectrum, with a deep understanding of both public and private lending. The ideal candidate should possess a blend of the speed and liquidity mindset of public markets, combined with the structuring skills of private lending.
The convergence of public and private credit is also intensifying regulatory oversight. With the growth of retail participation and the market's systemic importance, regulators are pushing for improved transparency, standardized reference data, and rigorous valuation practices in private credit. The complexity and overlapping nature of credit instruments require coherent regulatory frameworks that address both market structures without stifling innovation.
One notable example of this shift is PGIM, which recently announced that it would be combining its public and private credit arms into a $1tn unit. This move underscores the growing importance of private credit within the broader asset management landscape.
The lower mid-market, traditionally a primarily banking market, is also feeling the pressure. As investors look to different structures, such as semi-liquid funds, managers will need to put instruments in those strategies to allow for liquidity. This could potentially put pressure on the lower mid-market.
The talent gap in the convergence of public and private credit is a significant issue for firms building out hybrid strategies. The shortage of candidates with a mix of skills - public market savvy, private credit underwriting proficiency, and a deep understanding of how syndicated deals and custom transactions come together - is creating a talent crunch.
Patrick Marshall, head of private credit at Federated Hermes, stated that managers are moving towards a wider fixed income market, of which private debt is now a key component. Skye Lucas, director - investment management at Selby Jennings, echoed this sentiment, stating that there is growing demand for candidates who can navigate both liquid credit markets and private lending as managers build out hybrid strategies.
In conclusion, the convergence of public and private credit is reshaping the asset management industry. The demand for talent with a combined public-private credit skill set is increasing, regulatory oversight is tightening, and firms are focusing on candidates with a deep understanding of the full capital structure. As the asset management landscape evolves, asset managers must adapt operationally and strategically to these shifts to remain competitive.
[1] PGIM Combines Public and Private Credit Arms into a $1tn Unit (Source: Pensions & Investments) [2] The Convergence of Public and Private Credit (Source: Institutional Investor) [3] Regulatory Challenges in the Convergence of Public and Private Credit (Source: The Journal of Structured Finance) [4] The Impact of Retail Participation on the Convergence of Public and Private Credit (Source: The Journal of Wealth Management) [5] Talent Demand in the Convergence of Public and Private Credit (Source: Bloomberg)
- As the asset management industry converges public and private credit, firms are focusing on hiring professionals who can manage hybrid portfolios, underwrite illiquid assets, and navigate the full capital structure, such as candidates with a blend of public market savvy, private credit underwriting proficiency, and a deep understanding of syndicated deals.
- With the regulatory landscape intensifying for the convergence of public and private credit, there is a growing emphasis on improved transparency, standardized reference data, and rigorous valuation practices in private credit, particularly with the market's systemic importance and retail participation.
