By Paritosh Bansal
(Reuters) - To some elite financiers who gathered in Los Angeles for the Milken Institute conference, a debt binge in private markets is reminding them of the go-go days of risk-taking before the 2008 financial crisis.
In the halls of the Beverly Hilton and at meetings around town last week, I spoke with more than a dozen investors, bankers and fund managers involved in the booming $1.7 trillion private credit market, where investment funds lend private equity portfolio businesses and other companies money. Many of the financiers worried about the consequences of debt piling up in that market, which operates mostly out of sight of regulators.
Of particular concern to them were loans to private equity funds against portfolio companies that are already leveraged, lending that’s grown rapidly as a higher-for-longer interest rate environment stymies the ability of such firms to sell assets.
In many cases, the money is being raised to pay investors in these funds, such as pensions and endowments, dividends to meet demands for payouts, the financiers said. That also enables the fund managers to ask investors for new money, generating more fee income. In some cases, the money is being used to prop up struggling portfolio companies or to invest in them for growth, and to fund new acquisitions.