Man Group sees higher rates boosting private credit returns despite liquidity ‘growing pains’

Man Group's leadership sees the current macroeconomic environment as presenting a net positive for private credit investors willing to maintain disciplinary underwriting standards, despite acknowledged headwinds in market liquidity. Speaking at the SuperReturn International conference in Berlin, Kevin Marchetti, chief investment officer of Man Group's US direct lending business, emphasized that elevated interest rates are creating more attractive risk-adjusted return profiles for lenders focused on core middle-market segments, even as parts of the broader asset class navigate structural adjustment and redemption pressures.

Marchetti highlighted that floating-rate lending strategies are benefiting materially from higher base rates, with elevated benchmarks translating directly into enhanced yields across direct lending portfolios. With inflation remaining above central bank targets and monetary policy expected to maintain a restrictive stance, he suggested that the income-generation backdrop for private credit lenders will likely persist over the medium term. This assessment positions disciplined lenders to capture sustained attractive returns from their lending activities.

The Man Group executive also emphasized that credit fundamentals within the firm's core strategy remain sound. Sponsor-backed borrowers operating in defensive sectors are exhibiting relatively low levels of default, loss, and non-accrual activity compared to long-term historical averages. The risk profile has been further supported by tighter documentation standards and stronger covenant structures now embedded in institutional-quality transactions, which are bolstering portfolio stability and downside protection across the asset class.

However, Marchetti's cautionary language around ongoing "growing pains" reflects broader market challenges. The private credit sector has faced increased scrutiny regarding liquidity conditions following recent moves by major asset managers to manage redemption pressure. Blackstone has introduced withdrawal limits on flagship vehicles, while Partners Group has similarly flagged constraints on investor redemptions in certain strategies. These liquidity management measures underscore the structural challenges some segments of the private credit market continue to face, even as higher-rate environments support improved yield profiles for disciplined investors navigating the current landscape.