KBRA released a research report examining the resilience of its rated private equity and private credit firms. Amid ongoing trade tensions, tariffs, market volatility and a possible economic slowdown, KBRA views alternative asset managers—particularly those geared toward PE and PC—as more resilient on average than other types of financial institutions. This resilience is primarily underpinned by a fee-based business model that ensures more stable and predictable revenue streams, as well as low liquidity needs, enabling such firms to better navigate more challenging conditions. Management fees tied to committed capital or invested capital at cost provide a cushion during periods of market stress or valuation adjustments. A flexible cost base adds to these firms’ resiliency.
Should trade tensions or broader geopolitical risks evolve into a protracted economic slowdown, asset managers will face potential headwinds, including delays in portfolio company exits, valuation pressures at the fund level, and a more difficult fundraising landscape. A contraction in deal activity and tightening credit conditions could also weigh on performance fee income over time. Still, firms with substantial dry powder (unallocated committed capital) are well positioned to take advantage of market dislocation. These managers can deploy capital at more attractive valuations and spreads during periods of stress, potentially enhancing long-term returns. Moreover, experienced managers with diversified strategies, strong limited partner relationships, and proven track records may continue to attract capital, albeit at a more measured pace.
Click here to view the report.
