Any credit investor’s expectations of future performance are highly correlated to default and loss projections in their portfolios. With respect to corporate credit default projections for sub-investment grade borrowers, we asked investors their best expectation of annualized default rates in 2024.

Expectations came out relatively bullish with most investors expected a modest to low historical default rate environment in 2024. 78% of respondents believe that defaults will remain relatively low at 3-5% of total sub-IG borrowers, with only 10 percent expecting a default rate higher than 5% and 12 percent expected a lower default rate of 2-3%.

When asked if investors are concerned about the level of growth in assets under management in private credit, there was strong consensus that this is an area of worry. 62% of respondents somewhat agreed that GP AUM growth may lead to a deterioration in credit standards, with 20% strongly agreeing and only 18% disagreeing with the notion.

Finally, when asked about future concerns, the majority (58%) mentioned an increase in corporate default and loss rates as the main worry for their portfolios across the next 5 years.

A further 16% mentioned concerns around GP AUM growth in the asset class, 13% mentioned the use of fund-level leverage, and 7% were concerned about open-ended structures not being able to meet liquidity requirements. Very few investors (5%) noted worries about declining interest rates making the total and relative return environment less attractive.