Billionaires warn of private credit risks

Finance industry billionaires are raising concerns over what they see as increasing risk in private markets fueled by steep rises in asset valuations, limited regulation and macroeconomic pressures.

“There is some frothiness in the private sector,” Nu Holdings co-founder and Colombian tycoon David Vélez said in an interview with Bloomberg Television on the sidelines of the Bloomberg New Economy Forum in Singapore this week. “I’m sure there will be bad investments in this area, and we will see where that lies,” he said, adding that loose regulations around disclosures are adding to the risks.

The comments add to concerns that recent high-profile bankruptcies in the U.S. could mean more widespread trouble with credit in the financial system. There’s also a growing wariness that the $1.7 trillion private credit industry could be introducing new layers of complexity and risk in the financial system. 

Co-lending arrangements between banks and private credit funds are increasingly blurring the lines between syndicated and direct-lending markets and widening possible channels for contagion, Moody’s Ratings said in a report this week.

“When you see one cockroach, there are probably more,” JPMorgan CEO Jamie Dimon, another U.S. billionaire, said last month. 

“When I see cockroaches, I scream and run away, and that probably sums up my view to developed market private credit,” Mark Coombs, British billionaire and CEO of Ashmore Group, a £50 billion ($65 billion) asset manager, said at the Singapore event Thursday. When investors don’t mark to market and assume there’s enough dry powder, many times, “it’s all good until it isn’t.”

Depending on the amount of gearing, “everything can ripple” if there is a refinancing crunch, Coombs added. “You’re going to get some companies quite highly levered and over their skis when they don’t really want to be.”

Apollo Global Management CEO and billionaire Marc Rowan said at the same forum that it could be time for investors to “take risk down” by moving up in credit quality. Asset prices aren’t cheap and long-term interest rates are likely to stay high, he said.

— With assistance from Haslinda Amin, Francine Lacqua and Joanne Wong.