Our Perspective on Private Credit

Overview

Over the past 15 years, private credit has grown rapidly as banks retrenched from corporate lending following the implementation of Basel III capital requirements. Today, private credit represents a roughly $3 trillion global market and has become a core component of institutional and wealth portfolios. Semi liquid vehicles—such as non-traded Business Development Companies (BDCs) offering periodic liquidity—have expanded access to the asset class. These structures include fund level gates which offer investors quarterly liquidity in normal environments but are designed to help protect long-term investors during periods of stress.

The private credit market is now facing its first meaningful liquidity test, since COVID. Redemption activity from semi liquid vehicles increased in late 2025 and we expect it to remain elevated in the near term amid negative media coverage and heightened investor scrutiny. Importantly, much of the current concern reflects liquidity and sentiment risk rather than widespread credit impairment. Despite the liquidity concerns, we believe private credit may continue to play a constructive role in diversified portfolios when appropriately sized and approached with a medium- to long-term horizon.

Current Challenges in Private Credit

Recent negative headlines have focused primarily on direct lending, which involves non-bank loans—typically senior secured—to middle-market companies. Direct lending has historically appealed to investors due to its attractive income profile, floating-rate structure, and diversification benefits. However, several stress points have emerged:

• Increased use of liability management tools, including payment‑in‑kind (PIK) interest, covenant waivers, maturity extensions, and debt‑for‑equity exchanges. While these measures can preserve enterprise value, they often signal borrower cash‑flow pressure.
• High‑profile defaults, including First Brands and Tricolor, have intensified scrutiny of underwriting standards and portfolio quality. However, it is noteworthy that these two headline-grabbing deals were predominantly publicly traded, broadly syndicated loans owned by banks rather than private lenders.
• Valuation opacity, as private loans are marked by managers, most often using third party valuation agents, rather than priced in public markets, has raised questions about whether reported NAVs fully reflect underlying credit stress.
• Fears of AI-driven disruption, particularly in the software space, have given rise to existential threats to specific segments of the industry. While these risks are not isolated to direct lending, loan portfolios with a heavier weight to software companies have garnered greater attention.

Despite these headwinds, the environment is not uniformly negative. Several factors support a more balanced outlook:

• Interest rate relief following Federal Reserve cuts in late 2024 has reduced debt service burdens for floating rate borrowers, with modest additional easing expected in 2026.
• All‑in yields in senior secured middle market loans expected distribution yield are decreasing from low-double-digits to high-single digits, yet these yields remain compelling relative to public fixed income.
• Significant dry powder raised by opportunistic and distressed managers provides capital to address dislocations and refinance stressed credits.

For disciplined investors, current volatility may create opportunities rather than signal systemic weakness.

Private Credit’s Resilience

The majority of direct lending portfolios are comprised of senior-secured first-lien loans to companies backed by sophisticated private equity sponsors, that bring industry and operational expertise to the capital structure.

Notably, private equity sponsors are putting their capital at risk of first loss while most private lenders sit at the top of the capital structure and are relatively insulated from equity value fluctuations. Loans with low Loan-To-Value (LTV) ratios may be able to withstand a signification reduction in equity value before any principal impairment.

As we look across private credit funds, based on industry data, we generally have seen relatively low levels of fund level leverage, with debt-to-equity ratios of 0.8x or below. This is well below a typical target leverage ratio of 1.0x and the maximum regulatory cap of 2.0x. Lower leverage ratios can mitigate the downside scenario where fundamental credit deterioration leads to negative realized performance.

Historically, private credit has proved resilient even during years with significant economic events. Asset class level performance can be represented by the Cliffwater Direct Lending Index (CDLI) which is widely viewed as a benchmark index for Direct Lending exposure.

Historical Private and Public Credit Performance

2005 to 2025

*Includes estimated Q4 CDLI return with 27% of loans reporting. Source: Bloomberg, Cliffwater. Cliffwater is a service mark of Cliffwater LLC.  For illustrative purposes only.  One cannot invest directly in an index or benchmark. Index performance does not reflect the deduction of various fees that would diminish results. Any index or benchmark performance figures are for comparison purposes only, and client account holdings will not directly correspond to any such data. Private fund/alternative benchmark performance is not directly comparable to traditional market indexes.

Key Considerations

Not all private credit funds are created equal. We believe it is imperative to partner with prudent, experienced managers who demonstrate a consistent approach as a good steward of investor capital.

It is equally important to actively monitor a manager’s positioning to understand how they compare to their peers and assess its attractiveness in an ever-changing economic landscape.

Here are a few key private credit fund characteristics:

For illustrative purposes only.

The wave of negative press surrounding private credit reflects some legitimate risk considerations, but investors should distinguish between systemic risks and isolated stress.

At the same time, broader systemic fears may not fully reflect the diversity of outcomes across the market. Many direct lending portfolios remain diversified across profitable, sponsor-backed businesses with multiple levers to address operating challenges. Importantly, private credit has not experienced broad-based default rates comparable to prior credit cycles.

Conclusion

Market volatility provides a good opportunity for investors to review their portfolios. Private credit is undergoing its first meaningful liquidity stress test after a prolonged period of growth and benign conditions. While current headlines highlight real risks, they do not negate the asset class’s fundamental role in potentially generating income, providing diversification, and offering the opportunity for yield premiums over public markets.

For suitable investors with adequate liquidity and a long-term perspective, private credit may remain a viable and strategically valuable allocation. Success in the current environment may depend on manager selection, vintage awareness, portfolio diversification, and disciplined sizing within a broader portfolio. The Corient Alternatives platform offers a range of investment opportunities that may help investors evaluate and manage these risks in the context of their broader objectives.

Investors who approach private credit with clear expectations, thoughtful due diligence, and patience may be positioned to navigate today’s challenges and capture potential long-term value.

ABOUT THE AUTHOR

CONTENT DISCLOSURE

Corient refers to the separate but affiliated entities under common control of Corient Holdings Inc. These entities include but are not limited to Corient Private Wealth LLC, Corient IA LLC, Corient Family Office LLC, Corient Tax LLC, Corient Trust Company LLC and Corient Aviation LLC. Each service may be provided under separate agreements and separate fees may be charged for family office services, wealth management services or any other service provided by a Corient affiliate and/or third party. Additional fees and charges may be applied for other services or products Corient, its affiliates or unaffiliated third-parties provide to clients. Additional fees, such as custodial fees, fund expenses and third-party investment manager fees, may also be applied to client accounts.

This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy.

This material may include opinions or forecasts, including investment strategies and economic and market conditions. These opinions and forecasts represent Corient’s view or the view of the source cited.  Unless otherwise indicated, these views and opinions are as of the date noted and are subject to change. There is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice. There is no guarantee that investments objectives will be achieved.    These opinions and forecasts are not intended to be a solicitation of investment advisory services of any kind and should not be relied upon for any investment decisions. They are provided for educational use only. 

Different types of investments involve degrees of risk. The future performance of any investment or wealth management strategy, including those recommended by us, may not be profitable or suitable or prove successful. Past performance is not indicative of future results. One cannot invest directly in an index or benchmark, and those do not reflect the deduction of various fees that would diminish results. Any index or benchmark performance figures are for comparison purposes only, and client account holdings will not directly correspond to any such data.

Diversification, allocation and rebalancing strategies do not imply you will make a profit and does not protect against losses. Alternative investments often are speculative, typically have higher fees than traditional investments, often include a high degree of risk and are suitable only for eligible, long-term investors who are willing to forgo liquidity and put capital at risk for an indefinite period of time. They may be highly illiquid and can engage in leverage and other speculative practices that may increase volatility and risk of loss. Investments mentioned may not be suitable for all investors. Any product discussed herein may be purchased only after an investor has carefully reviewed the offering documents and executed a subscription document, which will contain additional information about the fund. Accordingly, the terms and provisions included herein are presented as of the dates indicated and information about the fund in its final form may differ materially from the information set forth herein.

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5300459 – March 2026