UBS says rich clients lost some interest in private credit

[ZURICH] UBS chief financial officer (CFO) Todd Tuckner said that recent developments have cooled excitement among the lender’s wealthy clients about private credit, adding to the challenges facing the asset class.

“Interest in private credit among our wealthy clients has been more measured in the current environment,” he said on Wednesday (Apr 29).

The decline in interest is “clearly reflecting macro uncertainty and a preference for liquidity and capital preservation”, he added.

The comments highlighted some of the growing pains facing the US$1.8 trillion private-credit industry after years of rapid expansion.

In recent months, fears have emerged of artificial intelligence looking set to disrupt the private equity-backed software businesses that borrow heavily from direct lenders.

These fears have led investors to step up redemption requests at some of the largest non-traded private-credit investment vehicles. 

Tuckner also said that private credit remains a “very modest portion” of the bank’s balance sheet, with private-credit funds accounting for around 50 to 60 basis points of its total leverage exposure. 

Questions have increased about the exposure of banks to the asset class.

Deutsche Bank in March flagged an exposure of 26 billion euros (S$38 billion) to private credit.

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Raja Akram, the CFO of the German bank, said on Wednesday that private credit continues to be a “non-story” for the lender.

He later added that the company continues to tighten its “underwriting standards in the current environment, being super selective” about who it lends money to.

He said that the bank has 2.5 billion euros in total exposure to business development companies, which includes 2 billion euros in undrawn credit lines.

Most of the exposure is senior in nature, he noted.

Spanish lender Banco Santander CEO Hector Grisi said private credit accounts for less than 1 per cent of total credit.

He added that the lender, which also reported first-quarter earnings on Wednesday, has tightened some controls. BLOOMBERG