Market & Topical Perspectives

Alternative Credit: 1Q23 Review

Alternative Credit: 1Q23 Review

Fluctuating readings on the potential trajectory of central bank policy and acute signs of strain in the banking sector made for a volatile first quarter 2023, but investment assets in general continued to rebound from a very challenging 2022. Meanwhile, last year’s resilience in alternative credit assets persisted through the beginning of the year.

Key Takeaways

  • Market sentiment has fluctuated wildly in recent months as participants try to discern the path of central bank policy. We believe uncertainty will continue to impact the behavior of borrowers, lenders and sponsors in the alternative credit space.

  • New-loan issuance has remained soft to start the new year. Constrained access to capital may tighten further as banks implement stricter lending standards in an effort to manage liquidity challenge following March’s bank failures.

  • Activity in the middle market direct lending space has also been slow, in our observation, and the illiquidity inherent in the asset class represents an additional hurdle in times of significant uncertainty.

  • We have been de-risking the portfolio in various ways over recent quarters and expect to remain defensively positioned until greater clarity emerges.