The conflict in the Middle East has been disrupting financial markets, raising concerns about rising inflationary pressures and global economic growth. One market that some investors are particularly worried about has not been heavily covered in the news: the private credit market. Even before the joint US-Israeli attacks on Iran on Feb. 28, global capital markets had faced growing structural pressure — the deteriorating funding conditions in the private credit market.
The private credit market is where companies borrow funds directly from nonbank financial institutions such as asset management companies, insurance companies and private lending platforms. Its popularity has risen since the 2008-2009 global financial crisis, after traditional banks’ lending capacity was limited by stricter regulatory controls. In addition, banks themselves have grown reluctant to lend. However, corporations’ funding needs did not diminish after the financial crisis; on the contrary, they increased due to expansions, and research-and-development efforts.
With traditional banks unable to meet corporate needs, a financial scheme emerged: create a fund, collect money from investors and lend it to companies. This alternative lending market became popular among small and medium-sized companies, as well as unlisted firms that had struggled to get bank loans. For investors, private credit offers high yields, greater flexibility in interest rate terms and diversified investment portfolios. As a result, the funding mechanism proved a big hit and market scale grew considerably.
By the end of 2023, the global private credit market had reached nearly US$2.1 trillion, 10 times the size of 2009, according to Prudential Financial Inc. Moody’s Ratings estimated the market could reach US$4 trillion by 2030, while McKinsey & Co forecast it could exceed US$30 trillion. Such optimistic views underscored the effects of rising global capital needs, the rise of asset-based financing, and the expansion of partnerships between alternative asset managers and specialist lenders.
While private creditors tend to be more lenient with their lending terms, the funds are not publicly traded, so relevant data are limited, information disclosure is insufficient and the industry is largely unregulated. After some of the borrowers went bankrupt in September last year and default risks continued to rise, investors started to reassess their risk portfolios and returns across the industry. Several well-known private credit specialists — such as Ares Management LP, Blackstone Group Inc, Apollo Global Management Inc and Blue Owl Capital Inc — saw significant declines in their stock prices over the past six months.
BlackRock on Friday last week became the latest fund manager to cap withdrawals at 5 percent from one of its biggest private credit funds after investor requests for redemptions spiked to 9.3 percent of their shares. Earlier last week, Blackstone pledged to meet 100 percent of redemption requests in its flagship private credit fund, after investors sought to pull a record 7.9 percent of assets from it. That came after Blue Owl Capital last month announced it was halting withdrawals in one of its private credit funds, and sold some of its loans to pension funds and its own insurance company.
The news comes amid growing concerns about structural risks in the private credit market. On the surface, the risk of more companies defaulting on loans and funds collapsing in the short term seems low, with what appears to be a few individual cases, so the private credit bubble is unlikely to burst overnight. Still, because the private credit market lacks transparency, if more funds face the same kind of problems in the longer term, it could trigger a domino effect across the industry, creating systemic risks for the overall financial market.
The conflict in the Middle East already has investors on edge, but stress in the private credit market could spook them even further. In this respect, Taiwan’s financial regulators must closely monitor trends and enhance supervision of the sale of overseas private credit funds by domestic financial institutions. Taiwan’s financial institutions, which are preparing to beef up their wealth management businesses, have a responsibility to promptly inform customers of any risks related to overseas fund products they sold. They also need to enhance the risk management framework, not only for the products, but also the risk exposure of their customers, prepare contingency plans and respond effectively.
In the event of a war with China, Taiwan has some surprisingly tough defenses that could make it as difficult to tackle as a porcupine: A shoreline dotted with swamps, rocks and concrete barriers; conscription for all adult men; highways and airports that are built to double as hardened combat facilities. This porcupine has a soft underbelly, though, and the war in Iran is exposing it: energy. About 39,000 ships dock at Taiwan’s ports each year, more than the 30,000 that transit the Strait of Hormuz. About one-fifth of their inbound tonnage is coal, oil, refined fuels and liquefied natural gas (LNG),
To counter the CCP’s escalating threats, Taiwan must build a national consensus and demonstrate the capability and the will to fight. The Chinese Communist Party (CCP) often leans on a seductive mantra to soften its threats, such as “Chinese do not kill Chinese.” The slogan is designed to frame territorial conquest (annexation) as a domestic family matter. A look at the historical ledger reveals a different truth. For the CCP, being labeled “family” has never been a guarantee of safety; it has been the primary prerequisite for state-sanctioned slaughter. From the forced starvation of 150,000 civilians at the Siege of Changchun
The two major opposition parties, the Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP), jointly announced on Tuesday last week that former TPP lawmaker Chang Chi-kai (張啟楷) would be their joint candidate for Chiayi mayor, following polling conducted earlier this month. It is the first case of blue-white (KMT-TPP) cooperation in selecting a joint candidate under an agreement signed by their chairpersons last month. KMT and TPP supporters have blamed their 2024 presidential election loss on failing to decide on a joint candidate, which ended in a dramatic breakdown with participants pointing fingers, calling polls unfair, sobbing and walking
In the opening remarks of her meeting with Chinese President Xi Jinping (習近平) in the Great Hall of the People in Beijing on Friday, Chinese Nationalist Party (KMT) Chairwoman Cheng Li-wun (鄭麗文) framed her visit as a historic occasion. In his own remarks, Xi had also emphasized the history of the relationship between the KMT and the Chinese Communist Party (CCP). Where they differed was that Cheng’s account, while flawed by its omissions, at least partially corresponded to reality. The meeting was certainly historic, albeit not in the way that Cheng and Xi were signaling, and not from the perspective
RSS