How Dry Powder Could Blow Up Private Credit and Private Equity

Alternatives firms are sitting on $1 trillion in dry powder – and trying to strike a balance between patiently holding out for good deals and yielding to pressure from investors who want them to start putting their money to work. It’s just one risk facing the private equity and private credit markets, according to JPMorgan Chase & Co.’s asset management unit.

As of the end of 2018, alternative asset managers had $800 billion in private equity dry powder and another $200 billion in private credit funds that have been raised but not invested. With so much capital waiting to be deployed and investors eager for deals, borrowers get the upper hand and lenders may not deploy the safeguards they would in a tighter market.

“我们听到一些有限的合作伙伴正在迫使GPS将这笔钱付诸上班，”JPMorgan资产管理的全球市场策略家大卫·勒博维茨（JPMorgan Asset Management）表示，在午餐时间讨论其季度指南中的替代方案。“经理坐在首都的风险，”他补充道。

According to data collected by JPMorgan, private equity and credit fundraising peaked in 2017 at almost $700 billion, with another $536 billion raised in 2018. “Dry powder is concentrated in mega funds,” Lebovitz said. “It’s a 2017 vintage problem.”

摩根大学资产管理的信念是，目前的信贷周期不会结束，尽管Lebovitz强调他不认为信贷衰退将创造系统风险问题。部分，这是因为资产管理人员现在使信用市场成为银行。1994年，美国杠杆贷款市场的71％的参与者是全球银行，其余部分由非银行和基金组成。到2017年，这种关系完全翻了一下，非银行公司和资金代表91％的杠杆贷款市场参与者。

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The growth of private credit, which often finances private equity transactions, poses another market risk. With plenty of money to borrow, private equity GPs and strategic buyers have pushed up company valuations.

Using the leveraged loan market as a proxy for the deterioration of credit quality, JPMorgan reported that 80 percent of U.S. leveraged loans were “covenant-lite” as of the end of 2018, meaning borrowers of money are shaping the terms of the deals in their favor. “If you are a borrower and can dictate terms then we are in a late [credit] cycle,” Lebovitz said.

According to JPMorgan, approximately 50 percent of leveraged loans are funding mergers and acquisitions and leveraged buy-outs. Lebovtiz said this creates two risks: the risk that the deal itself won’t work out and the risk of the leverage. As a result, JPMorgan is focusing on smaller deals and operational changes that can be made to increase returns.

摩根委员会资产管理额1亿美元的全球替代品业务负责人安东尼·普尔（Anton Pil）表示，私人信贷的唯一机会是短期众多融资，诉讼金融和灾难保险。“我们正在转向苦恼和特殊情况，”Pil说。“作为借款人，这很棒。但我现在不想借钱。这将结束很差。“

Pil said retail investors, who are increasingly investing in private equity and credit, should instead put money into real assets, because the amount of dry powder makes those two asset classes too risky.