KBRA Comments on Monitoring Private Debt and Private Equity Managers' Response to Events in Europe
KBRA releases commentary as we monitor private debt and private equity managers' response to events in Europe. KBRA's Funds and Financial Institutions groups rate many private debt funds, infrastructure funds, private equity funds, and asset managers throughout the world. The recent Russian invasion of Ukraine, sanctions on Russia, commodity market volatility, and deepening supply chain disruptions all have the potential to influence the global flow of money as well as the asset values of funds of all types.
As part of our ongoing portfolio management and monitoring efforts, we conducted a comprehensive survey of 80+ managers, investors, and issuers (representing nearly 200 transactions) to assess the initial impact of recent financial, economic, and supply chain events. Specifically, KBRA posed the following questions to our clients and sponsors:
- How are you assessing your portfolio's direct or indirect exposures? What vulnerable exposures have you identified thus far? If any, please provide details.
- Are any assets in your portfolio or transactions sensitive to commodity markets or the aviation sector? If any, please provide details.
- How are you assessing exposure to wider disruptions in payment systems, supply chains, and other developments?
- Does the transaction, sponsor, or rated entity have counterparty or other vulnerable exposures to banks/financial institutions?
Key Takeaways From Survey Responses
- There is no material evidence of direct exposure to Russia and Ukraine in our rated funds and assets managers at this time. While approximately 21% of all respondents said their portfolios have some Russian or Ukrainian exposure, these are typically small (under 1% of the total portfolio) and are indirect in nature, such as through investment portfolios, or in the case of subscription facilities, exposure to investors of a fund.
- Modestly higher exposure exists in aviation and commodity assets among those who sponsor private equity and private debt transactions. However, these are typically under 5% of the fund and mitigated by the underwriting and exposure to less sensitive subsectors such as maintenance, repair, and overhaul (MRO). Additionally, they are hedged with longer term contracts or are beneficiaries of the recent rise in commodity prices.
- In terms of wider disruptions in payment systems and related developments, spillover effects are being carefully monitored, though no extraordinary impacts are currently anticipated, and aggregate risk exposure appears stable. Overall, most investors indicated they were already preparing for increasing inflation, which should be exacerbated by the supply chain shock.
- In addition, essentially none of our transactions, sponsors, or rated entities have identified meaningful counterparty or other vulnerable exposures to banks and financial institutions at this time.
Ongoing Monitoring
KBRA maintains active surveillance on all investment fund debt and asset manager ratings for the life of each transaction. We continually monitor current events to deepen our understanding of the aforementioned potential credit effects on our rated universe. We will continue to communicate these findings and their potential impact in our rating, surveillance, and research reports as developments unfold.
Related Publications
- Investment Fund Debt Global Rating Methodology
- Asset Manager Global Rating Methodology
- ESG Global Rating Methodology
About KBRA
KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA's ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.
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