Further cuts to interest rates by central banks would provide a “level of impetus to capital markets” that would be positive for many asset classes including private, according to Viridian Financial Group chief investment officer Piers Bolger.
Bolger said while geopolitical risks, including the conflict in the Middle East and major shifts in US policy regarding trade and tariffs, all have implications for private credit, the interest rate cycle will be one of the bigger influences shaping the market in coming months.
If central banks continue to push rates lower, Bolger said this would provide a better environment for capital activity.
“In our view, cost of capital should then decline depending on underlying risk,” he said.
“By and large, you should see a lower cost of capital and cap rates, arguably, should also start to move lower, so that should provide the ability for capital activity to pick up.”
Bolger said this will be beneficial for multiple parts of the market as long as central banks aren’t cutting rates due to it being a recessionary or very low growth environment as opposed to inflation continuing to moderate.
“We’re not seeing a significant impost on inflation from high tariffs coming through the system and the jobs market looks reasonable,” he said.
“Against that backdrop, a lower rate environment would and should provide some level of impetus to capital markets, and that would be positive across the board. So private credit would be one asset class that would benefit from that, alongside equities and bonds.”
Bolger said corporate balance sheets were in reasonable shape at the moment and have been for the past couple of years.
He also noted that private credit was largely insulated from the economic volatility occurring in markets more broadly.
“When you’re talking about private credit markets, you’re really looking at the individual corporate that you’re lending to and where you sit in the capital structure around that. It’s somewhat insulated from the broader macro aspects,” he said.
“I’m not saying that the underlying business won’t be, but in the context of looking at an investment decision around private credit, you are somewhat insulated from some of the broader macro themes.”
