Market Stress to Divide Private Credit Firms, Fortress Says (1)

More volatility and a higher default rate in credit markets will sort the good from the bad in the private credit industry, which hasn’t yet been fully tested by the economic cycle, according to Fortress Investment Group’s co-CEOs.

“It’s really hard to differentiate yourself when there’s no defaults,” the firm’s co-chief executive officer Drew McKnight said an interview with Bloomberg Television on Wednesday. When you start to have some failures in a typical economic cycle, “you’re going to start to see some variance in returns.”

Credit blowups like those seen at auto lender Tricolor Holdings ...