Man Group Says Higher U.S. Rates Would Boost Its Private Credit Yields Amid Sector Redemption Pressures

U.S. interest rates would increase yields on the firm’s floating-rate middle-market direct lending book.

8% in April, and that annual inflation had exceeded 4% for the first time in three years. "Everything we do in the core middle market direct lending place is floating rate, so with benchmarks being higher, that'll drive a more attractive yield on those underlying assets that we finance," Marchetti said.

Man Group’s private credit strategy targets sponsor-backed deals in recession-resilient sectors.

Marchetti said underlying default rates, losses and non-accruals in that book remain well below long-term averages. "When you overlay that with tight financial covenants, which we have today, tight legal documentation, and good institutional ownership, I think what we're seeing is an attractive relative value opportunity in our core sector," he told CNBC’s Annette Weisbach.

The firm is monitoring how rising energy costs and the prospect of sustained higher inflation and rates affect portfolio companies.

Marchetti said a higher-for-longer rate environment would support stronger yields on the financed businesses. Last week Blackstone capped withdrawals from its flagship private credit fund after redemption requests rose sharply. Partners Group said it might restrict withdrawals from several vehicles.

Marchetti attributed the redemption pressure to retail investors who had not fully understood the illiquid nature of the underlying assets. "I chalk it up to growing pains of the asset class," he said. He added that liquidity and interest-rate risk remain live concerns, particularly for deals underwritten in a zero-rate environment two or three years ago.