The Fill: September 2024
A letter from our CEO
I hope you all had an enjoyable summer and your fall is off to a productive start. If you’ve been following the news over the last few months, you’ve likely seen headlines around the growth in private credit, with some journalists going so far as to call a market bubble. Over the last decade, the private credit market has grown from a niche corner of institutional investor portfolios to a $1.5 trillion market accessible to a broad set of investors. The private credit market is now similar in size to both the leveraged loan and high yield markets. And according to a recent Morgan Stanley report, this growth shows no signs of slowing—it predicts the private credit market could reach $2.8 trillion by 2028.[1]
At FS Investments, we have long recognized the value in private credit and the important role it can play in an investor’s portfolio. As my colleagues Andrew Korz and Alan Flannigan discuss in our recent research report , we do not see the market’s exponential growth as a bubble. Rather, we believe the recent growth reflects the continued expansion of the investor base among institutions and individuals, as well as structural changes within the capital markets as private lenders take market share from banks. Investors are increasingly drawn to the potential yield premium and diversification benefits of a market that was once exclusively the purview of banks. For many borrowers, private lenders have become the “lender of choice.” Management teams or private equity sponsors view the higher potential costs and more restrictive terms private lenders demand relative to the public markets as a fair trade-off for the certainty of execution, the enhanced flexibility in structuring loan terms and the ability to work with one or a small group of lenders—compared to dozens or even hundreds in the syndicated markets.
We are excited about the outlook for private credit while keeping alert for potential risks. The U.S. economy is on sound footing, corporate balance sheets have proven resilient through the first half of the year and inflation is trending lower. In our view, these conditions are favorable for private credit to drive strong total returns and a high level of current income for investors amid today’s higher rate environment. We have seen a pickup in lending activity in 2024 versus last year, which we expect to accelerate into next year as interest rates begin to decline and inflation headwinds continue to abate.
FS Investments has a long track record of successful private credit investing. Our Global Credit team, led by Andrew Beckman; our Private Credit Partnerships team, led by Brian Gerson; our Junior Debt team, led by Chuck Harper; and our Credit Secondaries team, led by John Kyles, manage solutions offering a variety of ways to access the opportunity across the middle market (lower, core and upper middle market), up and down the capital structure (senior, junior and mezzanine credit) and in special situations and opportunistic strategies. We hope this issue of The Fill will give you more insight into the depth and breadth of our platform and, as always, we are here for you if you want to learn more.
—?Michael Forman, Chairman + CEO
Get filled in on...
Mapping the markets: Q3 2024
Markets have rarely felt more complex and challenging to maneuver. For investors looking to make sense of the latest economic, financial and investment trends, use this compendium chartbook to map the markets and navigate what’s ahead. Featuring insights from Chief U.S. Economist Lara Rhame and Executive Director of Investment Research Andrew Korz .
Private credit: Opportunities to seize and risks to avoid
What are the most compelling opportunities in private credit ? Chief Market Strategist Troy A. Gayeski, CFA discusses middle market corporate lending, asset-based loans and how investors are targeting potential opportunities in private lending.
Is private credit a bubble?
The extraordinary growth in private credit markets has led some investors to question its risks. Join Chief U.S. Economist Lara Rhame , Managing Director of Credit Wealth Solutions Robert Hoffman and Executive Director of Investment Research Andrew Korz as they examine important questions on transparency, the quality of borrowers and the rapid flow of money into this key asset class.
Election 2024
Market + investing impact
The election continues to take over the news cycle, but how will the outcome affect markets? Our political and economic experts join together to offer ongoing resources on where policy change is expected, and how it may impact key opportunities.
FS Investments in the media
Troy Gayeski on Yahoo Finance: Opportunity in private credit
Chief Market Strategist Troy A. Gayeski, CFA joined Yahoo Finance to discuss why private credit may serve as an important solution for income in the current economic landscape. He addressed why investors may want to focus on growth at a reasonable price through middle market private equity, how the recent rally is likely to continue, and how rate cuts could impact markets.
Fulfilling acts
Children’s Hospital of Philadelphia’s Helping Hands Community Care Challenge
FS Investments colleagues joined hundreds of corporate volunteers for the Children’s Hospital of Philadelphia’s Helping Hands Community Care Challenge . Participants assembled activity kits, packed bags with supplies and gathered hygiene kits in a high-energy, high-impact day of service to help bring resources, kindness and comfort to patients and their families.
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Preparing children to go back to school with new supplies
FS Investments volunteers joined hundreds of local corporate sponsors at Lincoln Financial Field for the Cradles to Crayons annual Backpack-a-Thon . Participants filled backpacks with new school supplies to be sent to children in need, ensuring every child arrives to their first day of school with everything necessary to learn.
Connecting with students to learn about careers in finance
FS Investments hosted our second annual speed networking event with the Boys & Girls Clubs of America, organized in partnership with FS in Color and the Morgan Stanley Equity Collective. Students had the opportunity to learn more about the firm, explore careers in finance and connect with colleagues from across our organization.
Portfolio Advisors Back-to-School Drive
Portfolio Advisors colleagues partnered with the Women's Mentoring Network's Youth Advisory Board to host a back-to-school supplies drive. School supplies were then donated to support the community's students and ensure that they had the tools needed to succeed in the upcoming school year.
Awards and recognition
Welcome, Laura Sparks
This month, we welcomed Laura Sparks as our new Head of Corporate Engagement and President of the FS Foundation. In this role, Laura will catalyze our philanthropic resources, driving impact in service of our clients, colleagues and communities. She previously served as President of The Cooper Union (a private college in New York City) and Executive Director of the William Penn Foundation (a then $2 billion private foundation dedicated to improving the Philadelphia region).
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[1] Morgan Stanley’s Private Credit Market: 2024 Outlook & Opportunities
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