Key Takeaways
- • Sixth Street Co-CIO Josh Easterly warned in a Bloomberg Television interview that private credit markets are "relatively complacent" and that investors are underestimating interest rate and credit spread risk.
- • Easterly said "spreads aren't moving as much as they should," signaling that pricing does not yet reflect the risk environment as capital continues to flow into private debt.
- • Easterly cautioned that "today's yields are not tomorrow's yields," noting floating-rate credit will return less as rates are cut.
- • Sixth Street, which manages more than $100 billion in assets, sees value only in complex rescue financing, not in regular-way sponsor finance, according to Easterly.
- • In a letter to stakeholders, Sixth Street anticipates a world of lower growth and lower return on capital, and describes trade disruption as potentially the most significant long-term economic event.
Summary
Sixth Street Partners Co-Chief Investment Officer Josh Easterly is warning that shifting fundamentals in credit markets present risks many investors are overlooking. In a Bloomberg Television interview, Easterly attributed the problem to a mismatch between the capital flooding into private credit and the attractive opportunities available to deploy it.
Easterly said that "private credit markets are relatively complacent," adding that "spreads aren't moving as much as they should." He believes investors entering private debt are underestimating both interest rate and credit spread risk, particularly as lower growth conditions create challenges for all investors. He also serves as CEO of Sixth Street Specialty Lending Inc. (TSLX), and cautioned that "today's yields are not tomorrow's yields," explaining that floating-rate credit will return less as interest rates are cut. He summarized the outlook with the remark that "credit is honestly really tricky right now."
Sixth Street, which manages more than $100 billion in assets, sees opportunity in providing rescue debt financing to stressed businesses, though Easterly said such deals must be "complex" to be worthwhile. "In regular-way sponsor finance, we don't see value there at the moment," he said.
In a recent letter to stakeholders, Easterly wrote that Sixth Street anticipates "a world of lower growth and return on capital, given higher rates, elevated volatility and increased risk premiums." He described current disruptions to global trade as potentially "the most significant event" to affect the economy over the long term.
Easterly said that "private credit markets are relatively complacent," adding that "spreads aren't moving as much as they should." He believes investors entering private debt are underestimating both interest rate and credit spread risk, particularly as lower growth conditions create challenges for all investors. He also serves as CEO of Sixth Street Specialty Lending Inc. (TSLX), and cautioned that "today's yields are not tomorrow's yields," explaining that floating-rate credit will return less as interest rates are cut. He summarized the outlook with the remark that "credit is honestly really tricky right now."
Sixth Street, which manages more than $100 billion in assets, sees opportunity in providing rescue debt financing to stressed businesses, though Easterly said such deals must be "complex" to be worthwhile. "In regular-way sponsor finance, we don't see value there at the moment," he said.
In a recent letter to stakeholders, Easterly wrote that Sixth Street anticipates "a world of lower growth and return on capital, given higher rates, elevated volatility and increased risk premiums." He described current disruptions to global trade as potentially "the most significant event" to affect the economy over the long term.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.