Monthly Letter — July 2022

Direct lending has proved to be nimble, flexible and creative, not only in the face of significant market disruptions caused by the pandemic, but also when the markets recover.”

— Karan Chopra, Private Debt Investor Journal

With higher inflation predicted, it is unsurprising that the U.S. Fed is continuing to raise rates, with cost of goods pressures becoming ever more apparent — mainly in consumer-focused companies. In July however, in the US, investors breathed a sigh of relief as it offers a glimmer of hope that inflation may have peaked and consequently the rate of FED hikes may abate somewhat. Although inflation figures may have plateaued, they remain stubbornly high and further interest rate hikes in the near term are expected. The FED has already embarked on the most aggressive campaign to raise interest rates since 1981 and is expected to take further action throughout at least the second half of 2022. Central banks across advanced and emerging economies have followed suit, grappling with their own inflation surges exacerbated by Russia’s invasion of Ukraine.

Inflation expectations over a one- and three-year period have declined during July, based on the New York FED’s survey of consumer expectations. While this news is welcoming, we are not out of the woods yet — an August poll of Economists by Reuters showed that 50% believe the US will enter a recession within the next year. Moreover, inflation may rear its head once again as we go into the winter months in the northern hemisphere and energy demands increase. Powell has also indicated that future rate hikes will likely continue at an aggressive pace as the “overarching focus right now is to bring inflation back down”. The ECB is still seeking to strike a balance between tackling surging inflation and limiting the hit to the eurozone from higher energy prices. The CEO of Norway’s oil fund has cautioned investors that “Markets don’t go down in a straight line and I’m worried that we can have tough times for an extended period. There is a risk that we haven’t seen the worst yet.”

While the US economy is at the forefront of everyone’s mind, it is important not to forget about developing economies in these turbulent times. Driven by increasing rates in the US and with the visceral images from the Sri Lankan default, investors seem to have quickly soured on Emerging Markets with the IIF reporting net outflows of $10.5bn in July and $38bn in total over a 5-month period ending July. This broad-based retreat from the developing world is opening up opportunities for risk astute debt funders to improve the risk/return profile of investments in markets that have been shunned due to association and not necessarily macroeconomic fundamentals. Moreover, it has put our mission of supporting SMEs into sharp focus once more. As fair-weather funders leave small businesses high and dry, our funding is proving essential to allow them to continue operating successfully.

In AGC news, we are delighted to announce that we have opened a new office space in Cape Town, South Africa. We have 4 of our employees based there, with a 5th to be added in the coming weeks. The location will also serve as a good base of operations as we extend our reach in the Sub-Saharan African region and beyond.

At the heart of AGC is staying true to our mission of providing liquidity to SMEs and providing a stable return to our investors. Supporting the working capital needs of SMEs is particularly needed in times of stress and we are observing a much higher demand for working capital solutions from the businesses we support.

For further information, please contact Sudha Bharadia, Co-CEO and Chief Marketing, Investor Relations and People Officer at

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