As private credit expands and direct lending stretches away from its core, sensationalist headlines will likely continue. With the continued blurring of lines between public and private credit, and ~$14bn of CCC- rated debt under scrutiny11, defaults and losses are to be expected. To be clear, these headlines are not reflective of the long-term performance of core middle market direct lending exposure, and the balance of risk/reward we see today. That’s not to say that concerns around the asset class are completely unfounded, perhaps misplaced. If we cast our minds back to May 2024, Pluralsight had its equity marked to 0 by Vista Equity Partners. At the end of Q1 2024, seven brand name lenders had a different mark on their loan, ranging from 83.5% to 97%, with a 13.5% dispersion in valuations12.
Fundamentally, know what you own and know why you own it. Limited dispersion in returns and loss rates coupled with the growth of direct lending means that brand names have become a beta allocation. Pluralsight highlights the challenges of a lack of consistency in private credit, and the importance of looking beneath the hood, not only at valuation policies but fees, alignment and overall exposure. Smart beta can deliver an entry point to private credit that is more insulated from public market/large cap noise, a “truer” direct lending exposure with more flexibility on fees and access to co-investment. There is alpha available for investors in private credit today, via additional upside from strong alignment with quality platforms as they scale. Looking ahead to 2026, the sentiment at Corinthia is “stick to your knitting”. We see green shoots from an M&A perspective and with increased geopolitical stability, deal flow is poised to rebound
Within our core segment of sponsor-backed transactions, companies generating $10m – $100m in EBITDA, we are witnessing signs of this resurgence. There are hidden gems to uncover where terms, pricing and structures remain balanced. Direct lending isn’t a “point in time” trade; the asset class has historically delivered a long-term illiquidity premium of ~350bps13. Capturing this premium requires a long-term mindset and patience in portfolio construction. The key is remaining disciplined and sticking to an investment philosophy that has been tried and tested over multiple cycles periods of volatility.
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