Private debt: the ideal complement to bonds in times of stagflation
Structurally composed of mostly unsecured fixed-rate securities, the bond markets do not offer the same protection as secured private debt, either against rising rates or against rising defaults. The evidence is clear: the huge rebound in interest rates in 2022, in the hundreds of basis points, has caused a drastic decline in the valuations of bond portfolios, affected by falls of 20 to 25% depending on the durations and segments of the interest rate or credit markets. Protecting themselves against a continuation of this phenomenon has thus become a major challenge for institutional investors, who must reallocate their portfolios. From this perspective, seeking exposure to floating rate securities is key. Historically, floating-rate private debt has played this role as insurance against the risk of rising interest rates and should continue to do so in 2023, in the face of bond markets that are structurally composed of fixed-rate securities.