Milken Private-Credit Crowd Spots ‘Golden’ Moment in Trade Chaos

The 2025 Milken Institute Global Conference buzzed with a paradox: while U.S. trade policies under President Trump’s “Liberation Day” agenda unleashed volatility, private credit investors saw a “golden moment” to capitalize on dislocations. With tariffs spiking uncertainty, corporate borrowers faced higher funding costs, and markets scrambled to adapt. For private lenders, this chaos presented a rare opportunity to secure favorable terms, but risks loomed large.

The Golden Moment in Private Credit

Trade-driven disruptions have created a fertile environment for private credit investors, who are leveraging floating-rate structures and distressed-debt opportunities to outperform traditional markets.

1. Floating Rates and Rising Yields
   The surge in U.S. Treasury yields—driven partly by tariff-induced inflation—has amplified returns for private credit instruments. As Kort Schnabel of Ares Management noted, the 10-year Treasury yield spiked to a 24-year high of 4.40% in early 2025, up from 3.87% just days prior. This volatility, while destabilizing for public markets, benefits private credit’s floating-rate loans, which reset interest payments every 30–90 days.

1. Distressed Debt and Direct Lending
   Record volumes of distressed-debt exchanges—$30 billion in high-yield bonds and $11.8 billion in leveraged loans in 2024—highlighted opportunities for private lenders. Direct lending, in particular, offered a 9.9% average yield, far exceeding the 4.3% return on Treasuries and 7.2% on high-yield bonds. Carlos Mendez of Crayhill Capital emphasized that borrowers’ rising funding costs, unaccompanied by credit deterioration, allowed lenders to negotiate stronger terms.

2. Market Resilience Amid Chaos
   Blue Owl Capital’s Marc Lipschultz pointed to private credit’s role as a stabilizer during crises, citing its performance during the 2020 pandemic and regional banking collapse. Unlike public markets, private credit’s slower, relationship-driven nature allowed firms to weather volatility while securing “reliable, scaled capital” for borrowers.

Rising Risks Amid Economic Crosscurrents

Despite the opportunities, private credit faces headwinds from macroeconomic headwinds and policy uncertainty.

• Default Rates and GDP Concerns
  Moody’s reported that U.S. corporate default rates hit a post-2008 high of 9.2%, while the Atlanta Federal Reserve’s GDPNow tracker projected a -2.5% contraction for early 2025. Kort Schnabel acknowledged that “historically low default rates were only a matter of time from rising,” urging lenders to tighten covenants and pricing.

• Policy Uncertainty and Liquidity Risks
  Tariff fluctuations and trade disputes have delayed deal activity, with investors adopting a “wait-and-see” approach. Bill Ackman’s critique of Harvard University’s endowment—40% allocated to illiquid private equity—highlighted risks of forced sales at discounts of 10-20%, underscoring the need for liquidity management.

Geographic Shifts: Europe and Asia as New Frontiers

The “Sell America” sentiment dominated discussions, as investors chased opportunities in regions less exposed to U.S. trade turmoil.

• Europe’s Underdeveloped Markets
  Strategic Value Partners’ Victor Khosla noted abundant opportunities in Europe, where credit and insurance infrastructure lagged behind the U.S. Apollo’s John Rowan called Europe a “prime credit market,” while Bank of America’s Brian Weinstein cautioned against long-term capital shifts due to near-term economic uncertainties.

• Asia’s Infrastructure Boom
  Blackstone’s Jon Gray praised India’s legal and infrastructure reforms, which positioned it as a top growth market. Asia’s $11.8 billion in leveraged-loan distressed exchanges in 2024 further signaled demand for private capital.

Strategic Shifts and Market Innovations

Private credit is evolving to meet new demands, with structural changes and partnerships reshaping the sector.

• Morningstar’s Medalist Ratings
  Morningstar’s upcoming liquidity-adjusted ratings for private funds aim to institutionalize the sector, requiring higher returns for investors sacrificing liquidity.

• Firm Expansions and Partnerships
  Clearlake Capital plans to triple its credit business to $100 billion, while Apollo and Citigroup’s controversial partnership to acquire Boeing’s navigation unit signals a trend of bank-asset manager collaborations.

Controversies and Cautionary Notes

Despite optimism, risks persist. The collapse of Lex Greensill’s financing firm triggered insurance market shockwaves, exposing vulnerabilities in complex credit structures. Meanwhile, Harvard’s endowment crisis—exemplified by Ackman’s warnings—serves as a cautionary tale for overexposure to illiquid assets.

Conclusion: Navigating Chaos with Discipline

The Milken conference revealed a sector poised to thrive in trade-driven volatility but only for investors willing to balance risk and reward. Private credit’s 9.9% direct-lending yields, geographic diversification into Europe and Asia, and floating-rate resilience offer compelling opportunities. However, lenders must navigate rising defaults (9.2% corporate rate) and economic headwinds (-2.5% GDP contraction). Success hinges on rigorous underwriting, covenant-heavy diligence, and a focus on sectors like infrastructure and technology. As Howard Marks of Oaktree noted, this is a moment to “embrace complexity”—not fear it—to secure asymmetric returns in a fractured global economy.