In the final webinar of Keyview’s 2024 series, Managing Director Justin Lal and Partner Kevin Hua provided a comprehensive analysis of trends in the private credit market.
They discussed macroeconomic influences, sector-specific opportunities, and their outlook for 2025. The conversation revealed Keyview’s strategic priorities and its approach to navigating economic challenges while capitalising on emerging opportunities.
The overarching economic theme in 2024 was the persistent high inflation and elevated interest rate environment, which significantly influenced the private credit market.
“Interest rates impacted both consumers’ purchasing power and companies’ balance sheets, reducing borrowing capacity in sectors like consumer discretionary and pockets of real estate," Hua explained.
Commodity prices played a notable role in shaping investments. While geopolitical risks had less relevance for Keyview’s Australasia-focused portfolio, higher commodity prices drove investments in mining projects, particularly for major players and select juniors.
Hua emphasised a nuanced approach: “We didn’t change our methodology drastically but placed greater emphasis on downside protection, collateral security, and high-quality credits.”
Shorter durations and structured transactions
In the context of risk mitigation, Keyview balanced shorter-tenure transactions with portfolio diversity.
“Short-dated deals offer visibility on repayment, but they require active redeployment of capital. Our focus remains on matching cash flows while prioritising compelling, high-quality transactions”, noted Hua.
This flexible strategy aligns with the firm’s broader goal of building resilient portfolios.
Natural resources: a mixed opportunity
Natural resources emerged as a significant focus, contributing to 30% of Keyview’s deployment in 2024. Hua described a dual dynamic in the sector:
“Stockpiled resources allowed us to recoup the majority of our loan, minimising exposure to execution risks.”
Real estate and adjacent opportunities
While real estate remains a core part of Keyview’s portfolio, 2024 saw a pivot toward distressed scenarios and adjacent opportunities.
“The real estate market is under stress due to high rates and asset value write-downs. Assets are starting to be sold to address redemption pressures," reflected Lal.
Keyview capitalised on distressed situations by acquiring senior debt and funding last-mile construction projects. For real estate asset managers, the firm provided working capital to navigate underperforming assets and recapitalise balance sheets. “Thematic opportunities in this space will continue into 2025,” Lal predicted.
Beyond real estate: sector agnosticism
Contrary to perceptions that Keyview primarily focuses on real estate, Lal stressed the importance of diversification:
“Corporate and non-real estate assets dominated our deployment this year, reflecting a broader sector-agnostic thesis.”
Investments spanned the aforementioned natural resources, corporate asset lending, and real estate adjacencies, all emphasising strong downside protections.
Challenges and opportunities in structuring deals
Keyview’s commitment to senior secured lending remains steadfast.
“Our goal is to be the last money in and the first money out, maintaining control in case of underperformance”, noted Lal.
For subordinated loans, rigorous protections ensure that capital is recoverable even in adverse scenarios.
Floating versus fixed interest rates are also featured in investment discussions. While Keyview doesn’t forecast interest rates, the firm balances maximising credit spreads with competitive pricing.
“We aim for a 100-300 basis point premium over market benchmarks while accommodating counterparties’ equity cost limitations”, said Lal.
Looking ahead, Hua and Lal outlined key trends likely to shape the private credit market in 2025:
“We anticipate more recapitalisations and asset sales as managers address redemption backlogs,” Lal said.
“We remain conservative, assessing liquidity and collateral coverage to minimise exposure to volatile commodity prices,” Hua stated.
A commitment to disciplined investing
Keyview’s disciplined investment philosophy emerged as a recurring theme throughout the webinar. Both speakers highlighted the firm’s dedication to structuring deals that maximise returns while mitigating risk.
“Whether it’s real estate, natural resources, or other sectors, our focus remains on building robust portfolios that deliver consistent, risk-adjusted returns”, said Lal.
This measured, strategic approach positions Keyview to navigate the complexities of the private credit market, ensuring continued success in 2025 and beyond.
Competition in private credit: a tale of two worlds
Reflecting on the evolution of private credit, Hua and Lal underscored the increasing competition fuelled by the influx of capital into the sector.
"The flow of capital into private credit has benefited all players, but it also meant a lot of new entrants, some of whom are simply rebranded non-bank lenders”, said Hua.
The private credit space was described as bifurcating into two distinct realms:
The latter, characterised by tailored solutions and expedited execution, offers greater margins but requires more effort and expertise.
"These are the types of transactions where pricing isn’t the issue, but they demand harder work to achieve returns”, explained Hua.
Regulation: a growing focus on transparency and alignment
Keyview also highlighted the growing regulatory scrutiny in private credit, predicting that oversight would increase in three key areas:
These are healthy changes, according to Hua, who added that regulatory evolution is more of a structural shift than a short-term trend.
Strategic asset management: key to navigating complexity
Another recurring theme was the importance of strong asset management capabilities to tackle challenging investments.
"The calibre of teams working through these situations can turn problematic investments into opportunities for larger returns”, noted Hua.
Lal and Hua shared examples of acquiring debt from other lenders seeking quick exits, and leveraging Keyview’s expertise to achieve higher recoveries.
"We aim to buy debt below 100 cents on the dollar, knowing we can extract 120 cents through strategic management," they said.
Family groups with diverse assets also emerged as a focus area. By consolidating debt and simplifying transactions, private credit managers aim to provide tailored solutions that align with these clients' unique needs.
Opportunistic credit: a niche market with promising returns
The webinar emphasised the specialised nature of opportunistic credit and special situations, which involve highly bespoke transactions. These opportunities often command a premium due to their complexity, speed of execution, and limited competition.
"We thrive on solving complexity," said Lal, explaining that these deals often stabilise companies, positioning them for refinancing at lower costs.
While the segment is smaller, its strategic value is undeniable, particularly during periods of economic dislocation.
However, the limits of this market were also acknowledged, given that pursuing opportunities requires patience, strategic thinking, and expertise.
As the sector grows, maintaining a balance between capital inflows and deal quality remains a priority.
"We’ve been pickier about the deals we pursue, even as more capital becomes available," said Hua.
On the operational side, fostering talent is essential. "You can’t grow expertise overnight; it takes time to develop the skills required for specialised lending," added Hua.
Keyview also predicted continued consolidation among private credit managers. Citing recent transactions in the market, they argued that scale and operational efficiency are becoming critical.
A sector poised for growth and change
The webinar concluded with reflections on the evolving private credit landscape. The industry is maturing, and with that comes both opportunity and challenge. As competition intensifies, regulation tightens, and investment complexity increases, private credit managers must stay agile and strategic. Whether navigating bespoke transactions or adapting to shifting geopolitical and environmental realities, the sector is primed for a dynamic future.
This article originally appeared on Livewire Markets.
