In our latest Quarterly Credit Check, BC Partners’ Credit team, Ted Goldthorpe and Mike Terwilliger, highlight the geopolitical and economic challenges that have yet to slow markets, but remain an overhang.
The authors note that the U.S. Risk Curve—a cross-asset measure of yields—underscores the limited expected return available from equities, with earnings yields compressed further by the S&P 500’s historic rebound in
April and May.
The team articulates concerns that artificial intelligence may be fueling portfolio “looksmaxxing,” or investors allocating capital with impunity in hopes of amassing wealth amid a potential AI storm.
Much as “software is eating the world” defined the previous market regime, the BC Partners team opines thatthe current backdrop is described as “AI is eating cash flow.”
BC Partners again highlights the disconnect between public market and private credit default assumptions. While the media maelstrom quieted in the period, loss expectation for private assets remains meaningfully
distorted.
Lastly, with an overload of dry powder and a dearth of LBO activity, many—if not most— private markets firms may struggle to deploy capital, hindering their ability to generate outsize returns.
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