Why is private credit getting called out for potential bubbles and systemic risk when banks have been the ones failing? We posed that question to Van Hesser, the chief strategist for KBRA. Mr. Hesser produces a weekly podcast, “Three Things in Credit.” His October 27th conversation about private credit, capital markets and the economy caught our attention.
“It’s a reflection of what’s new,” he told us in our latest Private Capital Call podcast. “Post GFC regulators very successfully de-risked the banking system. We’ve seen a lot of capital coming into private capital markets over the past decade or so. The rush of money into that space gives some pause as they try to figure out is this a good or bad thing.
“We think this is a positive evolutionary step in the financial system. It takes the risk out of the hands of the twelve or so largest global banks, who cede control of their decision-making to regulators in times of stress. You’ve pushed and defused that risk across the globe into a thousand institutional investors. That’s a much better shock absorber.