1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 146
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
credit investors move further up the risk spectrum compared to public counterparts and accept
the higher risks associated with longer investment time horizons, limited liquidity, and lack of
transparency in the investment process. The growth in private credit opportunities and range of
lending structures has been fueled by businesses requiring sources of capital for growth and
expansion and customizable terms at a time when the major banks have pulled back from lending
in certain industries or forms whether due to regulatory changes or capital requirements.
The total addressable market for private credit has reached approximately $30-35 trillion (source:
iCapital Inc., Q3, 2025) versus $60 trillion for the global corporate bond market (SIFMA, 2025) and
has evolved across funding structures and the types of companies accessing private credit. But
that growth has a few critics, including some of the global banks, questioning the health of the
private credit market due to a few recent defaults that have generated headlines. Additionally, in
early December, the Bank of England launched a stress test exercise to focus on how the private
market’s ecosystem operates and the potential implications for U.K. financial stability and the U.K.
real economy.
The amount of private credit in the financial system is larger than it’s ever been and continues to
grow in one of the most benign credit environments since the global financial crisis in
2008/09. However, against this backdrop, investment discipline, and strong underwriting
standards (i.e., covenants) are more critical than ever given the breadth of players, increasing
competition, and narrowing spread premiums.
Funding needs continue to grow, however, fixed income investors need to be mindful of manager
selection at a time when experience, discipline and quality will prevail should economic conditions
deteriorate. While the private credit warnings highlight risks, they should be taken as sanity checks
on a market that continues to grow and will undoubtedly attract bad actors, underscoring the need
to focus on established managers and have reasonable return expectations when selecting private
credit mandates. Knowing how to cut through the noise will be critical for private credit investors,
reinforcing the notion that execution matters.
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