Bar chart showing the monthly volumes of U.S. distressed loans from March 2022 to March 2024. The data shows the levels of distressed loans rose from approximately $20 billion in March 2022 to over $103 billion in December 2022. Volumes retreated modestly in 2023 and so far in 2024. Volumes reached $55 billion in March 2024.
Sources: Pitchbook | LCD and Wells Fargo Investment Institute. Monthly data from March 1, 2022, to March 31, 2024. 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. An index is unmanaged and not available for direct investment. 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. Leveraged loans tend to have higher interest rates than typical loans. These rates reflect the higher level of risk involved in issuing the loan.
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 remain elevated in the coming quarters.
- As we appear to be in the early innings of the next credit cycle, we favor Distressed Credit strategies across hedge fund and private capital strategies. We believe the opportunity set will continue to expand over the coming quarters.