“Retail investors tend to invest when they shouldn’t and tend to redeem when they shouldn’t,” he said. “Managers, where they have been accustomed to having a lot of capital to deploy, may find they don’t have a lot of capital to deploy, and they may even find themselves in reverse.”

His comments around retail investors followed a prediction that dealmaking in the private credit market would decrease in the fourth quarter of 2022. Golub suggested this was an inevitable result of higher borrowing costs and economic uncertainty.

“With debt financing being more expensive, discussions take longer and closing gets pushed out,” he said. “We are going to see some decrease in deal closing activity.”

As well as making companies less likely to borrow money from private credit funds, higher interest rates could impact private credit funds themselves, he warned.

Many private credit funds use leverage to boost their returns, and the cost of that leverage is set to rise, Golub noted; if such funds have not adequately staggered the maturities on their own credit lines to match the tenor of the loans they invest in, they could face a credit crunch.

“Some funds that didn’t do a good job of laddering their maturities on the debt side, on their leverage side, we may see them struggle some in the context of having to refinance with meaningfully higher-cost debt,” he said.

“This matching, which hasn’t really been a big issue over the past five years, is likely going to come back as a really important factor,” he added.

The private credit market has grown hugely over the past decade. This year, some of that market’s largest players, including funds run by private equity giants like Apollo and Blackstone, have swooped in to fund large deals amid a tough backdrop for broadly syndicated debt.

However, in recent months these jumbo-sized loans have become increasingly scarce, as funds reduce hold sizes and generally dial back on risk amid talk of a possible recession.

Golub said he believed direct lenders would continue to take market share from the broadly syndicated space, although he warned that some private credit funds might have over-extended themselves on risk and pricing.

“In the early part of 2022 there were a series of these deals done where if you really looked hard at the pricing and returns, they were broadly syndicated deals [… ] in a private debt wrapper.” he said.

“It’s good for the private debt market that we can continue to take share from broadly syndicated loans,” he added. “But it’s not as simple as ‘oh, we’re going to do every one of these large deals’, because they’re not all good deals.”