Private Markets Alert Newsletter

✍️ Op-Ed: The Maturation Paradox: Private Credit's First Full-Cycle Test

Private credit enters 2026 facing its most challenging environment since 2008 as mounting stress indicators emerge precisely while the industry accelerates retail distribution. While headline default rates remained below 2%, incorporating selective defaults and liability management exercises reveals "true" rates approaching 5%. Payment-in-kind usage has grown substantially as borrowers struggle with interest burdens, with 17% of loans showing interest coverage below 1x.

Meanwhile, retail access vehicles surpassed $640 billion, up 45% year-over-year. Yet State Street and Apollo's PRIV ETF holds only $54 million—barely viable. The timing paradox: retail capital flows in as opportunistic and distressed funds raised $100 billion, signaling institutional preparation for stress. Performance dispersion widens based on platform quality, disadvantaging retail investors lacking resources to evaluate manager capabilities as excess returns migrate toward "solutions alpha" requiring specialized expertise.

🤝 Top Deals & Market Activity

• Global private equity deal value surged 43% in 2025, reaching approximately $1.5 trillion as normalized financing conditions and compressed hold periods drove exit acceleration, though Q4 showed signs of deceleration suggesting momentum may be peaking.

• PE-backed bankruptcy filings dropped in 2025 as sponsors extended maturities and restructured portfolios ahead of potential stress, though this may simply defer recognition rather than solve underlying problems at over-levered companies.

• Private equity management fees hit new lows as LP negotiating power intensifies, with established managers forced to offer discounted economics and expanded co-investment rights to secure capital commitments from consolidating institutional allocator base.

• European private credit fundraising hit record $66 billion through nine months of 2025, accounting for 35% of total private debt fundraising compared to 24% in prior years as allocators diversify away from increasingly commoditized US direct lending.

• Middle-market M&A activity expected to surge with 58% of executives anticipating volume increases in 2026, driven by attractive valuations, easing financing costs, and PE firms' urgent need to accelerate exits after four years of capital deployment exceeding distributions.

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