Index funds saved billions in fees. Now the industry wants its money back.

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Financial Times 3d ago

Index funds saved billions in fees. Now the industry wants its money back. - Financial Times

Quick Summary:

The revolution has been driven by economic realities: clients have gradually woken up to the fact that passive funds, which merely track an index, give them a cheap, simple method for investing in major asset classes.

This debt can be pretty high-yielding and this can deliver decent returns; institutional private credit funds made double-digit returns in both 2021 and 2023, for example.

The latest IMF global stability report warned: “Some midsized companies borrowing at high interest rates in private credit markets are becoming increasingly strained and have resorted to payment-in-kind methods, effectively deferring interest payments and piling on more debt.” The report also warned that competitive pressure in the sector was leading to deteriorating underwriting methods and weaker covenants (where borrowers agree to financial conditions).