JP Morgan, leading Professional Financial Service as hinted that insurance and pension companies top the list of major organization to be divested in 2024.
JPMorgan Asset Management projects that investors may divest as high as $30 billion of their holdings in private credit funds this year.
Andrew Carter, JPMorgan ’s Head of Private Credit Secondaries, noted that, the above-mentioned companies are major participants in the $1.6 trillion private credit market are trying to sell off parts of their investments in less liquid funds to generate cash.
He also noted that this activity is driving growth in the global secondary credit market.
Carter said, “Today, deal flow is again being driven by liquidity needs given the slowdown in cash flows created by debt repayments, which has resulted from decreased M&A and capital markets activity,”
Private credits refer to loans or debt instruments extended to companies by non-banking entities, such as private equity firms, hedge funds, and other non-traditional lenders, rather than by traditional banks.
However, within the Nigerian context, the private credit market involves the buying and selling of these debt instruments outside the regular banking system. This underscores the importance of FMDQ Securities Exchange comes into play.
FMDQ serves as a platform for the trading and listing of various debt instruments, including commercial papers, corporate bonds, and sub-national bonds.
The most common investors in this private debt market are insurance and pension funds, as these debt instruments serve as a way to earn returns on their investments. For example, as of November 2023, the total pension fund assets invested in corporate debts, money market instruments, and commercial papers in Nigeria was about N3.76 trillion ($3.99 billion).
As of January 10, 2023, the debt market size on the FMDQ Securities Exchange was put at N47.95 trillion ($50.9 billion).
Bloomberg revealed that, pension and insurance companies are reconsidering their investments in global credit markets to handle liabilities or respond to new regulations. However, sovereign wealth funds in the Middle East are increasing their involvement in these markets, as per data from the Global SWF 2023 Annual Report.
But according to Andrew Carter “The general trend we’re seeing in private credit is that Europe is selling and the Middle East is buying.”
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