Sixth Street Partners Co-Chief Investment Officer Josh Easterly is warning that shifting fundamentals within credit markets present risks that many investors are overlooking. In a Bloomberg Television interview, Easterly attributed this problem to a mismatch between capital pouring into the private credit sector and valuable opportunities to deploy it.
“Private credit markets are relatively complacent,” Easterly said, noting that “spreads aren’t moving as much as they should.” The co-CIO believes investors flooding into private debt are underestimating both interest rate and credit spread risks, particularly as lower growth conditions create challenges for all investors.
Easterly, who also serves as CEO of Sixth Street Specialty Lending Inc. (TSLX), cautioned that “today’s yields are not tomorrow’s yields,” explaining that as interest rates are cut in the future, floating-rate credit will return less. He emphasized that “credit is honestly really tricky right now.”
The firm, which manages more than $100 billion in assets, sees opportunity in providing rescue debt financing to stressed businesses, but Easterly noted it has to 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,” describing current disruptions to global trade as potentially “the most significant event” to impact the economy long-term.
For the complete interview with Josh Easterly on changing credit market dynamics, visit Bloomberg’s website.
