Katie Koch on private credit accidents and opportunities (with Romaine Bostick, Katie Greifeld)

Asks if the 'accidents' in private credit played out as she predicted a year ago.

Katie Greifeld

Katie Koch

Yes, we saw accidents. Now we see tremendous opportunity. When others head for the exits, that's when you want to get involved. We've been doing this for 26 years, unlike 98% of managers who started post-GFC. Discipline is key.

We don't own any software because we keep leverage at 3-4x and have strong covenants. We stayed disciplined on pricing.

Asks if we've seen the bulk of the accidents.

Katie Greifeld

Katie Koch

Private credit is just bank lending, it's been around since Mesopotamia. It will work out fine when approached correctly. The beta trade is over; manager selection will matter a lot. We see opportunities in new vintage direct lending (better spreads, higher base rate) and rescue finance.

A lot of money came in quickly, lending standards loosened, and that's showing up as challenges. Now, with money coming out, you can earn better spreads.

Asks about the asset-backed finance market and how much TCW has pursued it.

Romaine Bostick

Katie Koch

We've built a great ABF business. It's a way to get yields while taking a different type of credit, secured against cash flows. It's a great complement to a fixed income portfolio.

When you are late cycle and worried about corporate credit, ABF offers a way to get income with a different risk profile.

Asks about TCW's relationship with Nippon Life and how it affects risk-taking.

Romaine Bostick

Katie Koch

Nippon Life is a long-term partner and one of our largest clients. They are looking to diversify and pick up additional income in their general account. Life insurers are a great match for private credit due to income needs and liability length.

TCW is privately held, which allows us to think very long-term.

Asks about consolidation in asset management, especially in private credit.

Katie Greifeld

Katie Koch

Yes, there will be some consolidation. Some managers will produce mediocre returns, and clients may not want to be locked up for that. But the majority will be fine. The key is manager selection and risk-adjusted returns.

This is the history of Wall Street. A moment of worry brings new entrants, but the cycle will reward disciplined lenders.

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