Credit Exchange with Lisa Lee

The US healthcare space is very interesting as far as real estate is concerned, says David Mihalick, co-head of global investments at Barings, a $500 billion alternative asset manager with expertise in credit, real assets and emerging markets. Mihalick points to demographic trends with an ageing population and the need for medical offices and senior housing as reasons why Barings is keen. “We think that creates a really compelling investment opportunity, and we’re looking to take advantage of that in our business.”
Mihalick, who once served as the head of private assets as well as head of US public fixed income and US high yield at Barings, expects to see more trading of private credit loans. On high-yield bonds, despite the low spreads, Mihalick contends that investors are getting appropriately compensated.
He also discusses infrastructure CLOs, a fairly novel structure that Barings is among the few firms involved in issuing, and private credit CLOs in Europe, where Barings is one of two managers currently issuing such deals.

“The dispersion in performance is becoming more visible, certainly to institutional investors,” says James Reynolds, global co-head of private credit at Goldman Sachs, on the latest episode of the Credit Exchange podcast with Lisa Lee.
“It’s clear, as you travel the world and speak to LPs, that there is a flight to quality happening. There is a flight to quality and scale,” he says.
The headlines around private credit are focused mainly on BDCs, which accounts for $400bn of the asset class and is located in the US. The distribution yields have come down, Reynolds notes, but they were perhaps inflated since, over the course of 2022 and 2023, interest rates went from zero to 5%. When the market dislocates, you tend to earn excess yield.
And there’s also momentum with institutional investors, who understand this is a pretty interesting moment to step into these markets, Reynolds says.
He sees opportunities “everywhere” – in direct lending senior, direct lending junior, capital solutions, anything around infrastructure, ABF, structured IG, and single-name corporate IG private. The first quarter of this year was the busiest ever for Goldman’s private credit team, and Reynolds expects the rest of the year to be busy as well.

“We’ve been very opportunistic about deployment in cycles or dislocations, which I think we’re in the very early innings of,” says Milwood Hobbs, Jr., deputy chief investment officer of Oaktree’s strategic credit platform, on the latest episode of Credit Exchange with Lisa Lee.
There were about USD 200bn of private credit loans inked in 2021 and 2022, when tech-related business valuations had reached all-time highs. Since then, interest rates went from zero to 5%, valuations came down, and free cash disappeared. And AI has made it more difficult to price the risk and support the businesses. These loans mature in 2027 and 2028, and that’s where Hobbs suggests “you should focus on potential dislocation.”
New private credit deals should be more sensible. The recent spate of withdrawals from BDCs means that marginal buyers are gone, which means higher spreads and more conservative capital structures. “I think that is good for the investor and good for the market,” Hobbs says.

“Everybody’s still searching for that easy button on AI,” says David Neuenhaus, US head of asset management and private equity at KPMG, on the latest edition of the Credit Exchange podcast with Lisa Lee, taped at the conclusion of the Milken Institute Global Conference in Beverly Hills.
Neuenhaus says AI was among the hottest topics at the conference, which featured a who’s-who of the finance world, as well as former NBA star Shaquille O’Neal and football legend Tom Brady.
“There are some early adopters – some folks that have, I think, figured out ways to apply it and get traction sooner,” Neuenhaus says.
On attracting retail cash, he says: “We are on a journey, a learning curve here.” There will be ways to address the liquidity needs of the average investor in a more sophisticated manner as we move forward, he says.
There’s a rush toward retail, but the first movers have already arrived and it’s a crowd movement. For new entrants, there are some cases where “it’s a hard look in the mirror,” because not every firm is prepared to chase retail money. “You’ve really got to get your house in order.”
Neuenhaus also shares his opinion on some good news on the regulatory front for asset managers and private equity firms: “I think that’s a nice direction of travel.”

“We have ample liquidity,” says Dan Leiter, head of international at Blackstone Credit & Insurance, on the latest episode of Credit Exchange with Lisa Lee, as he explained the firm’s decision to honour all withdrawal requests at its private credit perpetual fund.
“[As a result] it was not an issue to honour the redemption, and we thought it was the right thing to do,” says Leiter. Competitors – some of whom capped redemptions at 5% – made assessments and opted for what was right for their vehicles. “They also have different liquidity profiles. They have different considerations,” he adds.
Leiter also addresses whether retail investors understood the terms of these perpetual funds, and says he has heard of no complaints from retail investors about being capped.
The negative headlines, which have more of an impact on retail investors, should wane soon. “When we look back in just a few months’ time, I don’t think it will take that long. Everyone will see that actually, the return profile in private credit remains really attractive, especially versus liquid credit,” predicts Leiter, who is also global head of liquid credit at the asset manager, which boasts around $1.3 trillion in AUM.
Shifting gears, Leiter says that everything that’s happening around AI is real, and there will be a lot of disruption. But, so far, Leiter says that Blackstone’s credit portfolios are performing well.
He isn’t seeing any major stress in Blackstone’s portfolio companies. But “that doesn’t mean there won’t be idiosyncratic defaults here and there,” he cautions.
Private credit default rates remain in line with, or even lower than, the publicly-traded leveraged loan market, and Leiter believes recoveries will be higher than for leveraged loans as well.
He also discusses opportunities in Asia, investment-grade private credit, and insurance; he also provides insights into growth prospects in the US, Europe and Asia, against the backdrop of the Iran war.