The Private Credit Risk Management Question
Until now, there has been no way to reliably assess private credit risks.
Investors and wealth management clients are in a world of uncertainty right now. Tariffs and the burgeoning Trump 2.0 global trade war are causing the VIX and markets to bob up and down incessantly, dragging Bitcoin down in tow, while gold reaches a new high.
Although alternative assets have been in favor for years now as essential elements in any typical wealth management portfolio, they usually have a catch that the public markets don’t have - liquidity.
Hedge fund gate provisions, strict private equity withdrawal limits, and venture capital redemption cycles are just some of the obstacles the average high-net-worth wealth management client faces.
Slightly Constricting
That is all great in a secular bull market, but it can start feeling a bit constricting in drawn-out bear market conditions. And despite the mid-week sharp gain in the equities market, the VIX remains high while April shapes up to be the worst in US stocks for that specific month since the depression (collated Google search).
Enter Private Credit
The private credit market is another form of alternative investment, but it also has a catch. Until now, there has been no way to independently assess the risk for them on a meaningful scale.
That is now changing, according to an announcement sent out by Moody’s and MSCI on Tuesday. The two companies are jointly creating a solution that will provide for more consistent standards and better tools.
High Quality Data
MSCI will contribute its unique and comprehensive universe of high-quality private capital data sourced from the original documents provided by managers.
This will include 2,800 private credit funds and 14,000 underlying companies. Moody’s, for its part, will use its EDF-X models in MSCI’s private credit solutions, allowing it to provide risk-based insights with credit models that will help investors assess financial strength.
Transparent Metrics
Taking this approach will allow for the creation of proprietary third-party risk assessments on private credit investments, considering both the underlying company and the specific facility using «transparent» metrics.
That will also move it closer to general practices in the financial industry, where modern credit risk analysis has been more or less standard since at least the middle of the 20th century.
