COVID-19 triggered a meaningful shift in the complexion of the U.S. economy, creating an environment that has stoked price increases and changed market expectations for interest rates.
After more than a decade of largely accommodative monetary policy, there is increased speculation that the Fed is prepared to end quantitative easing and raise interest rates to combat inflation and a potentially overheating economy. Further complicating the picture are the recent geopolitical developments in the Ukraine, which are adding to the momentum behind commodity price increases, given the importance of both Russia and the Ukraine in supplying the global commodity markets.
While the inflation environment has not changed Capital Dynamics’ approach to credit underwriting, industry focus and/or portfolio construction, it has informed the private credit team’s diligence efforts and structuring parameters. The core tenets of credit selection, structuring and portfolio construction, however, remain critical to investment performance. We believe the strength of our multi-strategy private market platform, including differentiated sourcing and a significant information advantage, allows Capital Dynamics’ private credit team to maintain focus on those priorities and build investment portfolios that are resilient to market shocks and that will outperform over time.
With that in mind, two of our thought leaders (Jens Ernberg and Thomas Hall – Co-Heads of Private Credit) have written a timely paper on U.S. Lower Middle-Market Direct Lending: A Safe Harbor in Times of Market Instability.
To read the paper in German, please click here.