Bar chart showing the monthly volumes of U.S. distressed loans from March 2022 to December 2023. The data shows the levels of distressed loans rose from approximately $20 billion in March 2022 to over $103 billion in December 2022. While volumes retreated modestly in 2023, the longer-term trend continues upward. Volumes reached $65 billion in December 2023.
Sources: Pitchbook | LCD and Wells Fargo Investment Institute. Monthly data from March 1, 2022 to December 31, 2023. For illustrative purposes only. Distressed loan volume is based on the Morningstar LSTA US Leveraged Loan Index, which is designed to measure the performance of the U.S. leveraged loan market Alternative investments, such as hedge funds, are not appropriate for all investors and are only open to accredited or qualified investors within the meaning of the U.S. securities laws. They are speculative and involve a high degree of risk that is appropriate only for those investors who have the financial sophistication and expertise to evaluate the merits and risks of an investment in a fund and for which the fund does not represent a complete investment program. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. Foreign investing has additional risks including currency, transaction, volatility and political and regulatory uncertainty.
Key Takeaways
- Given our expectation for a looming economic slowdown and outlook for rates to remain elevated, we expect the stresses in the loan market will continue to build in the coming quarters.
- While we remain in the early innings of the next credit cycle, we favor Distressed Credit strategies across hedge fund and private capital strategies as we believe the opportunity set will continue to expand over the coming quarters.