The US middle market presents opportunities for private credit despite economic uncertainty, according to Turning Rock Partners.
A white paper produced by the private investment firm highlighted unclear policy from the US Federal Reserve and global trade wars as headwinds that have led to increased uncertainty and volatility in markets.
However, Turning Rock Partners said that history has shown that market response to tariffs “is often knee-jerk and short-lived”, with sentiment moderating after a few quarters.
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Additionally, the analysis noted that private credit has performed well despite wider market conditions, maintaining its yield premium while default rates stayed low.
It said that there is a particular opportunity in the US middle market, as private firms are outperforming public ones.
“Indicators point towards investors becoming increasingly bearish on stocks,” the white paper said.
“The 10-year yield is near historical highs. Market signals point to lower confidence.
“However, middle market business leaders are highly optimistic about the economy.”
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The US middle market has grown six times faster than the average growth in the S&P 500, it said.
“Middle market business leaders have good reason to be optimistic, their companies are growing revenues at faster rates than the public markets,” the report added.
Looking at the private credit market overall, Turning Rock Partners said there is still plenty of room for the asset class to grow.
It noted that the public credit market is 19 times larger than private credit but the opportunity set in private companies is much larger than in public companies, adding that the number of US private equity-backed firms is larger than the entire US public stock market.
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