Investors will need to be patient to get cash payouts, Bloomberg reports
Ninepoint Partners has suspended cash distributions for three of its private credit funds after reviewing liquidity options.
The products affected are the Ninepoint-TEC Private Credit Fund II, the Ninepoint Alternative Income Fund and the Ninepoint Canadian Senior Debt Fund.
Bloomberg says that the Toronto-based investment manager will look at the situation again in the third quarter of 2024. The situation is concerning lenders across the board with some analysts worried about a potentially over-inflated market, currently worth US$1.7 trillion.
Ninepoint issued a statement to Bloomberg:
“After reviewing our various liquidity options, Ninepoint Partners and our subadvisors have determined that the best path forward to preserve liquidity and balance the long-term goals of these three affected funds is to redirect future distribution into additional units rather than cash distributions starting July 1.”
In April, the IMF warned of the risk of heightened financial vulnerabilities due to the “rapid growth of this opaque and highly interconnected segment of the financial system.”
While noting that the risk is currently limited, authors of a blog post based on a recent IMF report on global financial stability noted:
“…companies that tap the private credit market tend to be smaller and carry more debt than their counterparts with leveraged loans or public bonds. This makes them more vulnerable to rising rates and economic downturns. With the recent rise in benchmark interest rates, our analysis indicates that more than one-third of borrowers now have interest costs exceeding their current earnings.”
Hell to pay
Big banks are allocating more to private credit including some of Wall Street’s stalwarts. Goldman Sachs, Citigroup, and Wells Fargo are have announced plans over recent months to pour $50 billion into the space.
But JPMorgan chief Jamie Dimon has warned that “there could be hell to pay” as problems emerge in private credit, especially as retail investors gain access to the fast-growing asset class.
“Do you want to give access to retail clients on some of these less liquid products? Well, the answer is – probably, but don’t act like there’s no risk with that,” he said last week.
