Key Takeaways
- • Hedge funds and other investors are increasing bearish bets against the $1.8tn private credit market, according to Bloomberg, as a prolonged global bond selloff raises questions about the sector's resilience.
- • Net short selling across a 14-ETF sample reached $88.6m in the first half of September, roughly double August's $44m and approaching the $102m recorded in March, per EPFR data using FINRA figures.
- • Shares sold short climbed to 6.4 million by mid-September from 2.9 million at the end of August, versus roughly seven million in March.
- • Short interest as a share of AUM across the ETF sample recovered to 2.7% by mid-September after easing to 2.1% in August, below the record 3.4% reached in March.
- • Goldman Sachs, JPMorgan and Bank of America are offering clients long and short exposure to private credit through baskets of listed alternative asset managers, BDCs and financial institutions; the banks have not disclosed trading volumes.
Summary
Hedge funds and other investors are increasing bearish positions against private credit, a $1.8tn market, as a sustained selloff in global bonds prompts fresh scrutiny of the asset class's resilience, according to a Bloomberg report. Private credit assets cannot be shorted directly, so traders are expressing negative views through listed vehicles and proxies, including business development companies (BDCs), collateralised loan obligations (CLOs) and alternative asset managers with significant sector exposure.
Data from market intelligence firm EPFR show net short selling across a 14-ETF sample, tracked using FINRA data, reached $88.6m during the first half of September. That figure is roughly double August's $44m and approaches the $102m recorded in March, when investors were exiting private credit positions more aggressively. The number of shares sold short rose sharply to 6.4 million by mid-September from 2.9 million at the end of August, compared with around seven million in March.
Short interest as a proportion of AUM across the same ETF sample stood at 2.8% at the end of last year and hit a record 3.4% in March. It eased to 2.1% in August as traders reduced bearish positions, then recovered to 2.7% by mid-September.
Major banks are facilitating the trend. Goldman Sachs, JPMorgan and Bank of America are among firms offering clients ways to take bullish or bearish positions on private credit via baskets of publicly traded companies, including alternative asset managers, BDCs and financial institutions with private credit operations. The banks have not disclosed the level of trading activity in these products.
Data from market intelligence firm EPFR show net short selling across a 14-ETF sample, tracked using FINRA data, reached $88.6m during the first half of September. That figure is roughly double August's $44m and approaches the $102m recorded in March, when investors were exiting private credit positions more aggressively. The number of shares sold short rose sharply to 6.4 million by mid-September from 2.9 million at the end of August, compared with around seven million in March.
Short interest as a proportion of AUM across the same ETF sample stood at 2.8% at the end of last year and hit a record 3.4% in March. It eased to 2.1% in August as traders reduced bearish positions, then recovered to 2.7% by mid-September.
Major banks are facilitating the trend. Goldman Sachs, JPMorgan and Bank of America are among firms offering clients ways to take bullish or bearish positions on private credit via baskets of publicly traded companies, including alternative asset managers, BDCs and financial institutions with private credit operations. The banks have not disclosed the level of trading activity in these products.
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