Could Bond Market Calm Fuel a Minsky Moment for Private Markets?

Private markets have become the alternative asset class of choice because of high returns and low correlation to other markets. Risk-taking is also aided by the calmest markets in decades, raising questions about how prepared investors are for the next credit crunch. In Hyman Minsky’s words, stability breeds instability.

Until recently my assumption has been that geopolitical ‘Black Swan’ risk can be mostly ignored. The lasting impact of those risks has always petered out over time — except in one case, the Great Financial Crisis. But as the standoff over Greenland and a Japanese bond selloff are spilling over global markets, we should look at where leveraged risks lie. The rules of the last crisis have created safeguards for the financial system but these don’t apply to private credit.