Private Credit Chief Sees Golden Era Despite Bank Recovery

In Brief: Marathon Asset Management CEO Bruce Richards, whose firm manages $23 billion in assets, joined CNBC's 'Money Movers' to discuss the evolving private credit landscape and why he believes the sector remains attractive even as traditional banks regain lending strength.

Big Picture Drivers:

• Market Scale: Private credit operates within a $12 trillion non-investment grade credit market, part of the broader $90 trillion global economy

• Growth Gap: While global GDP grows at 3% and traditional finance at 4-6%, private credit is expanding at 20% annually

• Bank Evolution: Traditional banks are flush with capital and increasing lending, but are prioritizing loans to private credit firms over direct commercial lending

Key Topics Covered:

• Asset Range: Private credit firms now handle everything from corporate lending to asset-based financing for equipment, aircraft, and industrial machinery

• Risk-Return: Private credit offers 12% returns with 6% volatility, compared to traditional equity's 7% return with 16% volatility over the past 25 years

• Bank Competition: Rather than threatening private credit, banks are increasingly partnering with private lenders due to favorable capital charge structures

Key Insights:

• Regulatory Shift: The death of Basel III endgame regulations has freed up nearly $1 trillion in bank capital, benefiting both banks and private lenders

• Risk Management: Private credit firms can take on strategic risks that regulated banks cannot, while maintaining strong returns

• Market Timing: Current "Goldilocks" conditions of higher-for-longer rates and declining default rates create optimal lending environment

By The Numbers:

• Market Size: Global economy ($90T), global equity markets ($110-120T), global fixed income ($110-120T)

• Performance: Private credit delivers 12% returns with 6% volatility versus equity's 7% returns with 16% volatility

• Bank Capital: JP Morgan's CET1 ratio approaching 16%, highest ever recorded

Memorable Quotes:

• "This is a pro growth world... Private finance is growing at 20% per annum." - Bruce Richards

• "We're in the Goldilocks for credit right now - higher for longer, default rates coming down, credit spreads strong." - Bruce Richards

The Wrap: Despite strengthening traditional banks and evolving market conditions, private credit continues to carve out a distinctive niche in the financial landscape. The sector's ability to deliver superior risk-adjusted returns while filling crucial financing gaps suggests its growth trajectory will likely continue, even as it adapts to a changing competitive landscape.