Debt Service Coverage in Private Markets Is Improving, Actually | Nicholas Brooks
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Over the past year, there's been some very bad press on private credit, including on this channel where recent guest Nick Nemeth said that he thinks it's almost inevitable that the next financial crisis will be caused by private credit. Today, I'm seeking out a very different perspective. I'm speaking to the head of research at a private asset management firm that has over a $100,000,000,000 in assets under management. He has lots of data on individual companies in terms of their debt levels and EBITDA growth. He argues actually that the debt levels he's seeing are sustainable and that corpora
Thank you very much. It's it's great to be here.
What is on your mind? When you're talking to clients, what are some of the messages that you're trying to get through?
There's a lot of noise. There's a huge amount of noise. So we had everything from, you know, the tariffs, winning the Russian invasion of Ukraine and the implications for Europe and commodity prices. More recently, of course, the war in the Middle East, and its implications for energy prices and supply chains. But having said that, so we have all of these things going on and plus a lot more that I didn't mention, software and other things which we can go there later on, AI, is markets have continued to power ahead, you know, both in terms of equities on on the credit side as well. And and unde
So the yes. So the huge amount of headwinds, the Iran war, the price of oil, tariffs, valuations, geopolitics, fiscal deficits, why are markets doing so well? Why are markets so resilient?
So far, the disruptions caused by all the geopolitical noise it's more than noise. It's reality. It's wars. I mean, it's higher commodity prices. So far, the impact on economies has been quite manageable. So we've seen a bit of a dip in growth in some sectors, in some countries. We've obviously seen interest rate expectations change. So there have been real impacts on areas that will affect financial markets. But really at the heart of it is earnings growth. If you look at EPS growth in the public markets or if you look in the private markets where we tend to operate and where I tend to track
I want to get into credit and balance sheets, but just talking about private company EBITDA growth. You've got this chart from this proprietary database that you have showing US EBITDA growth for private companies and European EBITDA growth. And for European, it's hovering about at 8% and at US, maybe a little bit a little bit lower, like like 6%. It's interesting to me that European EBITDA growth has been higher over the past three to four years than American EBITDA growth. The narrative that we encounter, and I think it's true, is that Europe has been impacted far more hurt far more by the h
In our industry, so private equity, private debt and the private markets, we tend to be much more focused on the mid market companies. It has to do with sector weights. So in my database or our database, we can look at various sector performance and sub sector performance and we can look at weights and weighting it based on company count. What we found was that in The US there was not a huge amount but a decent amount more invested in the healthcare sector than in Europe. So in our industry, healthcare still has a pretty high weighting both in Europe and in The US, but it was a decent bit high
In the public markets, tech has been a real source of earnings growth. A lot of that has been, I actually think, tech hardware rather than software. Software in the private markets had been an extremely well performing asset class. Is there a dif
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