(Bloomberg) -- Morgan Stanley Investment Management is seeing fertile ground for putting capital to work in certain pockets of private markets where mid-sized firms are facing a liquidity squeeze.
“Companies that have had some disruption but are fundamentally sound are looking for creative capital -- could be debt-like, could be equity-like,” said David Miller, head of the firm’s private credit and equity business, at a Thursday virtual panel. “So credit opportunity broadly is the most attractive it’s been in a decade and that’s going to continue well into 2021.”
A “big need for rescue capital” is likely to continue into next year, he said.
Mid-sized companies have been mostly shut out of the liquid credit markets, which larger firms have been able to tap due in large part to action taken by the Federal Reserve. Their need for funding is an opening for managers sitting atop piles of cash, and an opportunity to capitalize on dislocations and undervalued assets.
“Putting aside some of the chop today, it’s been really strong based on the Fed, just based on the markets working, but the private and the middle market are a little bit different,” Miller said.
A similar dynamic is emerging in real estate investing.
“In private real estate, we’re seeing wide dispersion in both operating performance as well as the pricing across asset classes,” said Lauren Hochfelder Silverman, deputy chief investment officer of Morgan Stanley Real Estate Investing.
Silverman said there’s “significant stress” in certain sectors of the industry, such as retail and hotels, as well as meaningful shortfalls in cash flows. However there are areas, such as those tied to e-commerce, that present more lucrative opportunities.
In the private debt market, Miller sees a much more “accommodative” market place when it comes to stress than in the last crisis. Lenders have largely been flexible with borrowers that have been hammered by the pandemic, agreeing to amendments, sometimes in concert with sponsors kicking in more equity.
“By and large balance sheets were much better than before the last crisis, there is more equity invested, people are more prudent,” he said. “And so there was a little bit more flexibility and frankly, more liquidity.”
Morgan Stanley Investment Management had $665 billion in assets under management, with $17 billion specifically for private credit and equity, and $49 billion for real assets, as of June 30, according to the firm’s website. The unit had $715 billion in overall assets under management or supervision as of Sept. 30.
(Adds unit’s assets under management as of Sept. 30 in final paragraph.)
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