Private Credit Sees Opportunity as Tariff Chaos Disrupts Private Markets Landscape | Weekly Pulse

Must Know:

Trump's tariff announcements sent markets into a tailspin, with $9.5 trillion in global equity value wiped out and Blackstone, KKR, and Carlyle stocks plunging 15-20%, while private credit firms position to swoop in as traditional lenders retreat amid financing bottlenecks.

The Bottom Line:

As Blackstone President Jon Gray warns of a potential "domino effect" if market volatility persists, private market players with dry powder see both opportunity and heightened risk.

Why It Matters: 📉

• Private credit firms with $433 billion in dry powder eyeing $12+ billion in struggling bank debt deals, including $2 billion for Apollo-backed ABC Technologies

• Institutional investors seeking exits from private equity funds at steep discounts, potentially below 80 cents on the dollar

• Banks turning to private credit for rescue on major financings like Sycamore's $10 billion Walgreens Boots Alliance deal and CEC Entertainment's $660 million high-yield offering

The Big Picture: 🏛

Despite market volatility, strategic opportunities are emerging for well-positioned players, with direct lenders poised to benefit from bank retreats, though potential "falling dagger" risks loom if tariff effects extend beyond temporary disruption, as Blackstone's Jon Gray cautioned at a recent Georgetown University event.

By The Numbers: Key Metrics Shaping Private Markets 💹

• $9.5 trillion: 💸 Global equity value wiped out in recent days following Trump's tariff announcements

• $433 billion: 💰 Dry powder in private credit funds (59% for direct lending) as firms prepare to seize opportunities

• $194.1 billion: 🤝 Total value of 406 private equity exits in Q1 2025, up from $88.2B in Q1 2024

• $176 billion: 📊 Private credit fundraising in 2024, remaining robust despite challenging market conditions

• $170 billion: 💵 Blackstone's "dry powder" available for deployment amid market turmoil, per Jon Gray

• 9.9%: 📈 Investment Management Corp. of Ontario's (IMCO) 2024 return, driven by 24.2% gains in stocks and 16.4% in private equity

• 5.5% to 9.3%: ⚠️ JPMorgan's projected US default rate range from "modestly" to "severely" pessimistic scenarios

• $15+ billion: 🏦 Looming debt financing for buyouts including Sycamore's Walgreens deal and QXO's Beacon Roofing purchase

• C$86 billion: 🇨🇦 IMCO's assets under management, with US exposure increasing to 52% (up from 42% in 2021)

Market Spotlight: Regional Developments 🌎

• 🇺🇸 United States: Banks seeking private credit bailouts on stalled deals, with Barclays marketing $500M Validity Inc. deal to direct lenders at 500+ basis points over benchmark after failing to gain investor interest, while JPMorgan and Goldman Sachs struggle with Chuck E. Cheese owner's $660M bond offering.

• 🇨🇦 Canada: IMCO reports strong 9.9% return for 2024 but acknowledges "different reality" since tariff announcements, emphasizing portfolio resilience and avoidance of investments with "stroke of the pen" risk while writing down $400M stake in bankrupt Northvolt AB.

• 🇬🇧 United Kingdom: Clara Pensions planning £3+ billion private markets push as UK government prepares pension superfund legislation, while KKR and Stonepeak acquire UK healthcare landlord in defensive move amid market uncertainty.

• 🇪🇺 European Union: EQT successfully exits partial stake in IFS at €15 billion valuation despite market turmoil, while Bloomberg columnist warns that leveraged buyout deals from pandemic era using cheap financing are now approaching "natural maturity point" creating "real headaches."

• 🇫🇷 France: Ardian delays fundraising for multi-billion flagship fund and restructures buyout team amid challenging fundraising environment with high-profile executive departures, including Yann Chareton to Perwyn.

Deal Spotlight: Transactions & Strategies 🤝

• 🏦 Private Credit Bailouts: CEC Entertainment (Chuck E. Cheese owner) considers private credit as alternative to stalled $660M high-yield bond deal, while banks approach private lenders to rescue Apollo-backed $2B+ debt package for ABC Technologies' acquisition of TI Fluid Systems ahead of April 15 deadline.

• 🏥 Private Equity Exit Activity: New Mountain Capital acquires stake in healthcare software provider Office Ally at $1.8 billion valuation from Francisco Partners in one of few successful sponsor-to-sponsor transactions amid market turbulence.

• 🏢 Defensive Real Estate: Blackstone's €9.8 billion European property fund deploys capital into warehouses, residential properties, data centers, and hotels with Jon Gray emphasizing $170B deployment capacity for opportunistic investments during market dislocation.

• 🖥️ Enterprise Software: EQT sells stake in IFS at €15 billion valuation (nearly double its value three years ago) to Abu Dhabi Investment Authority and Canada Pension Plan Investment Board with Hg becoming co-controlling shareholder.

• 💊 Resilient Healthcare: KKR funds acquire Swedish consumer health firm Karo Healthcare (maker of E45 cream) from EQT for €2.6B in what Bloomberg identifies as a "defensive asset" purchase in an "idiosyncratic" deal showing the sectors still attracting capital.

Fundraising Focus: Capital Formation Across Strategies 💵

• 🏦 Private Credit Firepower: $433 billion in private credit dry powder (59% for direct lending) positioned to capitalize on traditional bank retreats, with Ted Goldthorpe, head of BC Partners' credit arm, declaring: "There's a lot of talk of defense but I want to play offense."

• ⚠️ Risk Management Challenges: Direct lenders must avoid "catching falling daggers" as Ranesh Ramanathan of Akin Gump warns of GFC-like scenario where "lenders kept lending to companies thinking they would stabilize their businesses, which they eventually had to abandon."

• 🏘️ Real Estate Resilience: Blackstone raises record-breaking €9.8 billion European real estate fund during property market correction, with head of European real estate James Seppala noting "exceptional dislocation in the industry" while asserting "recovery is coming into view."

• 💰 Pricing Correction: Maxime Laurent-Bellue, co-head of credit at Tikehau Capital, notes pre-tariff market tightness across credit markets and sees opportunity: "It's not a bad thing to widen out pricing," though cautioning deals require "minimum visibility" unless "completely immune to tariffs."

• 🔄 Secondary Market Evolution: Private equity firms increasingly requiring "staple" commitments (new fund investments) from buyers of existing stakes, with HarbourVest's Jeff Keay noting some GPs are "more aggressive than others in potentially withholding their consent" for stake transfers.

Industry Insights: Strategy & Outlook 🧠

• 📊 Systemic Risk Concerns: Blackstone President Jon Gray warns of potential "domino effect" if market volatility persists, noting "the longer you have periods of heightened volatility, the higher the chance that something goes wrong and has some sort of domino effect," exposing counterparty risks and leverage in the financial system.

• 📉 Value Preservation Challenge: Bloomberg columnist Chris Hughes highlights shift in private equity priorities from "generating double-digit returns to just giving investors some cash back," with industry now facing growing challenge of "value preservation... every time exits get pushed out."

• 💰 Strategy Adaptation: IMCO CIO Rossitsa Stoyanova emphasizes avoiding "stroke of the pen risk" in private markets, focusing on "things we can control – managing costs and liquidity effectively; and systematically rebalancing our portfolio" rather than market timing.

• 🌉 Bridge Financing Risks: Deal closures increasingly dependent on short-term bridge loans, exemplified by Clearlake Capital's "gamble" on a short-term bridge loan for Dun & Bradstreet acquisition while seeking more permanent financing.

• 🏥 Debt Package Challenges: Major financing packages at risk include Sycamore Partners' $10B Walgreens deal, QXO's $11B Beacon Roofing purchase, and $2B+ debt package for Apollo-backed ABC Technologies, with private credit firms positioned as potential rescuers at premium pricing.

Trends to Watch 👀

• 🏦 Private Credit Ascendancy: Traditional banks withdrawing from leveraged finance creates unprecedented opportunity for private credit, though Moody's Marc Pinto cautions that "if tariffs remain and credit quality worsens, its growth could slow down" given the sector's "not insignificant" systemic importance.

• 🔄 Public-Private Market Dynamics: DoubleLine's Jeffrey Gundlach warns "when public markets experience a sharp decline, like now, it is nonsensical to think private markets are a harbor in the storm," highlighting interconnected risks despite private credit's hold-to-maturity model.

• 💵 Monetary Policy Response: Jon Gray points to Fed's ability to reduce interest rates "if things get worse" as a potential stabilizer, calling it "very helpful for the economy and for asset prices," while noting dollar's plunge amid expectations for rate cuts.

• 💼 Talent Retention Challenges: Chris Hughes highlights operational risks of delayed exits: "As the hoped-for payday is delayed, morale in the portfolio company falls... Talent is more susceptible to being poached. The risk of atrophy rises."

• 🌐 Geographic Exposure Shifts: IMCO's US allocation rose to 52% of its portfolio (up from 42% in 2021) while Canada declined to one-third, highlighting institutional investors' continued US focus despite growing trade tensions.

• 🏢 Domestic Asset Interest: Growing interest in "domestically focused companies in low-growth European markets" that were "previously too boring to consider" but now "look relatively more attractive, sheltered from the direct impact of tariffs."

• 🏭 Portfolio Company Stress: JPMorgan warns Business Development Companies (BDCs) could face pressure with economists forecasting unemployment rising to 5.3% by year-end amid tariff impacts.