Private credit has moved to the forefront of financial headlines as the asset class continues to grow and mature. Recent media coverage has focused on stress in select portfolios, elevated redemption activity at certain semi liquid vehicles, and isolated credit events. These developments have prompted broader questions about resilience, liquidity, and investor suitability.

While the headlines are attention grabbing, they risk obscuring the underlying fundamentals of a diverse and heterogeneous market. A more measured assessment highlights meaningful distinctions across strategies, structures, and managers.

Defining Private Credit

Private credit broadly encompasses lending and credit strategies outside the traditional banking system. Key segments may include:

• Direct Lending (primarily senior, first-lien, floating rate corporate loans)
• Asset Based Lending (ABL) (loans secured by specific cash flowing assets)
• Real Estate and Infrastructure Credit
• Specialty Finance (loans against unique, cash-flow producing assets such as aircraft leasing or intellectual property royalties)
• Opportunistic and Distressed Credit

Capital is typically provided by institutional investors and private funds managed by specialist firms. While leverage is commonly employed, it is generally modest relative to the banking system. Many private credit strategies operate with asset level leverage in the range of roughly 1:1 to 1:2, compared with materially higher balance sheet leverage at regulated banks.

Private credit is not a new phenomenon. The market expanded significantly following the Global Financial Crisis in 2008, as regulatory changes constrained bank lending and created space for private capital to intermediate credit risk more directly.

Structure, Liquidity, and Access

Unlike public credit markets, private loans are not traded daily. These investments are inherently long term and illiquid, with valuations typically derived from fundamentals and comparable instruments rather than market clearing prices.

Historically, private credit was the domain of institutional investors, such as pensions and endowments, with very long-time horizons. More recently, investor access has broadened through semi liquid vehicles such as interval funds and non-traded business development companies (BDCs), particularly within direct lending.
These structures generally offer periodic liquidity, often quarterly, subject to stated limits (commonly around 5% of net asset value per period). When redemption requests exceed available capacity, they are met on a pro rata basis.

Importantly, these liquidity constraints are a design feature, not a flaw. They are intended to align investor liquidity with the underlying assets. In exchange, investors may earn a yield premium relative to public credit markets. Suitability is critical: investors must be able to tolerate restricted access to capital during periods of market stress.

Why the Recent Headlines?

The heightened scrutiny of private credit reflects a convergence of several cyclical forces over the past 12–18 months:

Normalization of Interest Rates

After a period of unusually strong income driven by elevated short term rates, the Federal Reserve began easing policy in late 2024. Because most direct loans are floating rate, lower base rates have translated into lower all in yields for investors. At the same time, increased competition has compressed spreads from peak levels, further moderating returns.

Slower Mergers and Acquisitions Activity

Reduced M&A deal flow limited opportunities to deploy capital at attractive terms, intensifying competition for high quality borrowers and weakening lender negotiating power at the margin.

Selective Credit Stress

While default rates remain contained, stress has emerged in pockets of the broader credit ecosystem, including:

• Amend and extend transactions
• Interest deferrals and payment in kind (PIK) features
• Technical or selective defaults

Highly publicized fraud allegations in recent years have largely occurred in asset based or structured credit, rather than traditional cash flow direct lending. These cases underscore the importance of collateral verification, controls, and manager discipline, but do not point to systemic weakness across private credit.

As JPMorgan CEO Jamie Dimon noted in late 2025, isolated problem loans often prompt broader concern. However, such commentary has generally referred to credit markets as a whole, including public and private, bank and non bank, rather than any single strategy.

Sector Specific Considerations

Direct lending exposure to software companies has received particular attention. Software often represents a meaningful portion of portfolios given its recurring revenue characteristics. While technological disruption and AI related risks are real, they are not new.

Loans in this sector typically feature:

• Mission critical products
• High customer retention
• Short loan durations (often 2–3 years)
• Significant equity cushions (commonly 60–70%)

That said, prudent managers are actively reassessing exposures and allowing concentrations to decline naturally as loans mature.

Why Manager Selection Matters

Recent conditions have reinforced the fact that manager due diligence is of the utmost importance. Our selected managers have generally navigated the current environment more effectively due to:

• Conservative underwriting grounded in cash flow durability and covenant protection
• Broad diversification, limiting exposure to individual borrowers or sectors
• Disciplined distribution policies, aligning payouts with earned income
• Thoughtful liquidity management, including credit facilities and marketable holdings
• Operational rigor, avoiding excess leverage and non-cash income reliance

Bottom Line

Private credit returns have moderated from the unusually strong levels of 2022 and 2023, and differentiation between strong and weak managers has become more visible. Based on our ongoing due diligence, we remain comfortable with our private credit managers, who see improving supply demand dynamics, stabilizing fundamentals, and disciplined underwriting as constructive for mid and large cap borrowers.

We believe private credit can play an important role in adding diversification and potentially higher income to select client portfolios. This potential must be aligned with appropriate goals, time horizons, and risk tolerance (including liquidity considerations). Our approach remains consistent: long term, diversified investments managed by experienced teams with disciplined, transparent strategies whose track records indicate a strong credit underwriting ethos.