Credit Exchange with Lisa Lee

“We have ample liquidity,” says Dan Leiter, head of international at Blackstone Credit & Insurance, on the latest episode of Credit Exchange with Lisa Lee, as he explained the firm’s decision to honour all withdrawal requests at its private credit perpetual fund.“[As a result] it was not an issue to honour the redemption, and we thought it was the right thing to do,” says Leiter. Competitors – some of whom capped redemptions at 5% – made assessments and opted for what was right for their vehicles. “They also have different liquidity profiles. They have different considerations,” he adds.Leiter also addresses whether retail investors understood the terms of these perpetual funds, and says he has heard of no complaints from retail investors about being capped.The negative headlines, which have more of an impact on retail investors, should wane soon. “When we look back in just a few months’ time, I don’t think it will take that long. Everyone will see that actually, the return profile in private credit remains really attractive, especially versus liquid credit,” predicts Leiter, who is also global head of liquid credit at the asset manager, which boasts around $1.3 trillion in AUM.Shifting gears, Leiter says that everything that’s happening around AI is real, and there will be a lot of disruption. But, so far, Leiter says that Blackstone’s credit portfolios are performing well.He isn’t seeing any major stress in Blackstone’s portfolio companies. But “that doesn’t mean there won’t be idiosyncratic defaults here and there,” he cautions.Private credit default rates remain in line with, or even lower than, the publicly-traded leveraged loan market, and Leiter believes recoveries will be higher than for leveraged loans as well.He also discusses opportunities in Asia, investment-grade private credit, and insurance; he also provides insights into growth prospects in the US, Europe and Asia, against the backdrop of the Iran war.

Global economies are adjusting to the oil shock from the Iran war, says Juhi Dhawan, macro strategist at Wellington Management, on the latest episode of the Credit Exchange podcast with Lisa Lee – and China has shown surprising resilience that may improve its competitiveness against Europe, Japan and some other Asian countries.Looking at the past performance of economies and markets to oil shocks, one of the surprises this time has been China, Dhawan says. It has held up better because it has reduced its reliance on oil due to its big push into renewables and coal. That’s good news in that China is a big driver of global growth, but less good in that China is already in a very competitive position from a manufacturing standpoint relative to Europe, Japan, and some other countries in south-east Asia.“One of the questions we are asking ourselves is, will China again gain competitiveness as Europe struggles with this energy shock; as Japan faces this energy shock,” Dhawan says. “[Will] China end up being relatively better off compared to what its past would have suggested?”Dhawan, who leads analysis of the US economy at Wellington, an asset manager with more than $1.3 trillion in AUM, says the United States came into 2026 with some of the most accommodative fiscal and monetary policy set-up in a few years. That creates some buffer room for the economy to withstand these higher energy prices.Besides energy prices, Dhawan also discusses productivity gains from AI, the labour market, trade flows and demographics. In addition, financial markets are reacting to the Iran war, resulting in adjustments. There could be boosts coming into AI-related areas, power, and energy, she says.

“The doomsday scenario is a complete over-exaggeration,” says David Manlowe, CEO of Benefit Street Partners, on the latest episode of Credit Exchange with Lisa Lee. Manlowe asserts that investors will have time to see the impact of artificial intelligence, which could even help boost margins at software firms.“I don’t see a big company like, for example, Franklin Templeton, ripping out their core software system in the next couple of quarters.”The average level of exposure is around 22-23% for BDCs, Manlowe says, but among funds, there’s huge disparity. If one drew a histogram of all private credit BDCs and their ownership of software, it would range from funds focused on technology at up to 70%, while others are at 2%. BSP, the $94 billion alternative credit business inside Franklin Templeton, has around 9.5% exposure to software.Where the rubber really hits the road, is not in performance this quarter or next quarter, but when these companies have to refinance their debt, Manlowe notes. And that doesn’t really start until the second half of next year.That said, there will be some early indicators in the earlier part of the year, and every quarter to follow. “You could see, over the next few quarters, an extended period of time where some of these software companies actually see a fairly significant margin expansion, because they’re so much more efficient at how they’re writing code and deploying code, so on and so forth.”This raises a key question – how wide, and how deep, is the moat around a given software application?On the recent withdrawals from semi-liquid private credit funds, Manlowe believes the design of the product was very thoughtful around the asset class. The 5% cap ensures what’s going into the funds actually has a duration that is shorter and can fund the redemptions.“That five percent per quarter wasn’t a made-up number,” he says. “There’s something I learned through all this – maybe we didn’t educate as much as we should.“Let’s get back out educating the investor base. It’s not a product design flaw.”On the Iran war, Manlowe predicts it will have an impact on short-to-intermediate-term inflation. He is upbeat about the prospects for floating-rate credit markets in particular: “[The] underlying economy, both in the US and Europe, should be conducive to the companies that we lend to, and the companies in the market performing reasonably well.”

“We are going to see consumer pain, and particularly on the lower-income side of things,” says David Saitowitz, head of US liquid credit at ICG, a global alternative asset manager with $127 billion in AUM, on the latest Credit Exchange podcast with Lisa Lee.That means certain sectors could get hurt while others do very well, he says, adding that it’s a trend he’s already seeing. Anything consumer related – whether it’s housing, travel, to apparel and retail, are under pressure. “Those areas, I think, are all feeling a decent amount of pain, and I think they will continue [to].”Saitowitz is especially worried about housing, as rates stay higher for longer. The economics around housing continue to be weak and that has real implications for people everywhere, he observes.He also notes that we are in an interesting time where, with a massive technological innovation underway, that factor could be overshadowing geopolitical events which may have been considered in a more serious way previously.On artificial intelligence, ongoing new advancements will lead to difficulties for software firms, he believes, especially those that were over-levered and need to refinance soon. “We will see some LMEs; we will see some bankruptcies,” he says.And when that does happen, he adds, recent history suggests recoveries will probably be worse than we have seen in some time.But that said, there’s plenty of companies that will do just fine, and Saitowitz doesn’t believe there will a widespread or massive spike in defaults.

Private credit firms, including Hayfin, are still willing to lend to software companies, says Marc Chowrimootoo, co-head of direct lending at alternative asset manager Hayfin, on the latest episode of the Credit Exchange podcast with Lisa Lee.“If that call comes in, we absolutely take that call,” says Chowrimootoo, on how he responds to a request from a private equity fund for a software LBO financing. “We absolutely give it the due care and attention.”But the willingness to partake has moderated, he adds. “Everyone is being much more judicious.”There are a number of questions you can go through with a private equity buyer who understands what they’re doing, Chowrimootoo says. For example: how can I understand why this is more insulated than others out there? How embedded is this platform with its customers? What’s different about the ownership of data in this particular asset? What’s the protected moat around the end customer, and the usage of this in the technology?Regarding software exposure more broadly in the private credit market, Chowrimootoo notes that Europe has less exposure compared to their counterparts in the US. In addition, while retail capital is a huge portion of the US market, European private credit funds have less than EUR 10bn in retail vehicles.On the geopolitical front, Chowrimootoo says Europe has had to deal with many periods of volatility. “It’s way too soon to be making a judgment on where the direction of travel is on credit spreads; where the direction of travel on default levels are; where the direction of travel is on stress of earnings.”

The current period is a “really important rite of passage” for retail access to private credit and direct lending, says Tristram Leach, head of investments Europe at Apollo Global Management, on the latest episode of Credit Exchange with Lisa Lee.“The five percent number is there for a reason,” says Leach, speaking about recent outflows from semi-liquid private credit funds that have seen a pickup in redemption requests (some firms have given back more than the agreed 5%; some have limited at 5%).“It’s important to protect remaining investors. It’s a level of liquidity that has been promised. And in general, we think the appropriate way to proceed is to do what you said you’d do.”Direct lending, he believes, will continue to grow – but it needs to go through a period where there are elevated redemptions in the marlet.“People want their money back. You have to see the products work as they were designed to work. And the way they’re designed to work is they give five percent. That, broadly speaking, is the appropriate design, and how it should function,” Leach contends.He adds that we are still in a fairly early period in the development of wealth access to direct lending. Consequently, it’s understandable that results in a “slightly flightier” asset base compared to institutions.Leach understands the argument that the central composition of the direct lending market does put it more in the crosshairs of this threat. “The very high software concentration, certainly among some of our peers in private credit, does create some additional risk when you think about AI disruption,” says Leach, who is also the co-head of European credit at Apollo.Across the firm, Apollo has around 2% software exposure. Even within direct lending, Apollo is “clearly at the bottom end of the range,” Leach says.Nonetheless, he believes the market was relatively slow to wake up to the potential of AI. “What’s surprising to me is that when Claude Code came out, the market suddenly noticed,” he says. “We’ve been watching the incredible pace and development of large language models for several years now.”On Europe, the Iran war probably represents more of a cyclical threat to Europe than the US because of the energy price dynamic and geographical proximity, Leach believes. “That is definitely a headwind to growth; it’s a headwind to cyclical industries.“Especially for companies exposed to growth in Europe, that’s going to be a challenge, because of the inflation impacts to energy prices.”Nonetheless, that doesn’t materially impact Leach’s expectations for greater infrastructure investment and defence investments on the continent.“There’s been a huge change in the attitude of European policymakers towards the need to spend money, become more productive, become more competitive. All these things are clearly felt viscerally within Europe because of how fragile the continent’s position seems. I think you’re going to see changes, and I think you’re going to see Europe seek to take advantage of the opportunity,” Leach says.Leach also shares why, in football, he is wholly committed to Atlético Madrid.

“We’ve never had more undrawn capital,” says Jonathan Dorfman, chief investment officer at Napier Park Global Capital, a $40bn alternative credit manager. Napier Park has been prepping for a repricing of financial assets that predates the Iran war and the software crisis, Dorfman said in the latest episode of Credit Exchange with Lisa Lee.Have ready cash and take advantage to buy assets that are going to come up for sale very soon, Dorfman advises. He says credit spreads should widen further: “We are going to see more and more problems occur, and more and more bad headlines.”While Dorfman believes people will look back and say the headlines over private credit’s software issues were overblown, it’s appropriate there’s been a dramatic repricing, because of the enormous uncertainty caused by AI. The more sophisticated software companies are not going to sit still, and they will figure out how AI benefits them, and come out stronger. But some won’t.On risk from the Iran war, Dorfman says history shows that markets usually have a short-term, very violent downward move with some type of capitulation to major geopolitical developments – but then they recover. Sustained high oil prices need to last at least a few months to meaningfully affect the real economy, and therefore financial markets. Right now, it’s too early to tell if this is a buy-the-dip moment. But it’s probably a fine strategy, he reckons.A pioneer of the credit default swap, Dorfman says the CDX index is saying there’s a lack of fear about a recession and/or a meaningful economic slowdown. Risk premiums are higher, but they’re not high in an absolute sense that would be consistent with a slowdown.

“Private markets and private credit can be very, very helpful,” says Andrew Davies, in reference to the emerging dislocations he sees in financial markets, on the latest Credit Exchange podcast with Lisa Lee. Davies is the head of credit at CVC Capital Partners, a global private markets manager with more than EUR 200bn in AUM.That help could be in the form of helping banks that are struggling to offload underwritten debt, scooping up publicly trading debt that’s priced too low, or providing to financial sponsors who find banks pared back, Davies says.“We’ve seen it every time there’s a period of volatility,” he adds.CVC and private credit is still deploying, despite increasing geopolitical risks, fears of AI disruption, and negative headlines around the industry, particularly in the US. European private credit is different, Davies contends, with more stability in capital flows that are more reliant on institutional investors rather than affluent individuals. The opportunity in Europe is to access a fragmented market that is less mature and has less competitive tension.“It’s been somewhat immune from that over the last year or so, in terms of what you’re sensing coming out of the news flow in the US,” Davies says.His biggest worry is around a heightened risk environment in the geopolitical landscape. There has already been short-term price action in energy markets, which Europe is very exposed to. “Does that flow into inflation? Does that flow into rates? Does that flow into a number of things?” he asks.

“You are going to hit a little bit of a wall because of power. You’re going to hit a little bit of a wall, because of the sheer capital that’s supposed to be there to finance that piece,” says Joel Holsinger, co-head of alternative credit at Ares Management, on the latest edition of Credit Exchange with Lisa Lee.Holsinger expects to see a slowdown, because the current level is “probably unsustainable” for the sheer amount of capital that is required for all these projects, along with the amount of power generation that needs to be built.Already, banks are trying to reduce their exposure across some of their data centre names, Holsinger says – not due to risk or fear, but because they want to buy more.“They’re already at capacity issues, because the opportunity set is so big,” he says.Holsinger adds that there are emergent signs of concern for troubled credits.“Right now, we’re in the situation where the tide has not gone out. That’s very clear,” he surmises, referencing Warren Buffett’s famous line. “Underlying fundamentals are generally good. But you’re seeing some random nudity on the beach.”This said, Holsinger contends there are not yet huge cracks emerging in underlying credit markets, either on fundamentals or spreads. But he believes we are at the end of the cycle, and there is more news to come.Holsinger, who is co-head of the Ares Charitable Foundation, also discusses philanthropy and “Promote Giving”, an innovative method to commit at least 5% of fund performance fees to charity.

The investing environment has gotten hard, says Christopher Sheldon, co-head of credit and capital markets at KKR, on the latest episode of Credit Exchange with Lisa Lee. “It’s adult swim only.”There’s a lot of uncertainty in the market, and much of the investor community is trying to figure out what playing field they’re on, explains Sheldon. He discusses KKR’s latest investor letter, titled CTRL + ALT + CREDIT, intended to reboot how investors are approaching credit.Sheldon contends that you have to be well-versed, have scale, and create your own origination, because elevated defaults and downgrades along with spreads tightening results in a “tough recipe”.“The more flexibility you have, the more ways to win. The more scale and breadth and origination you have, the more ways to win,” he says.Sheldon worries about lack of new supply in debt markets, that may cause spread tightening. He also notes the growing concern around outflows from certain markets. Right now, the private credit market is starting to see some flows come out on the wealth side, which is fine as redemptions are often capped. But if that is sustained for long periods of time, there may be a little bit more volatility in the market, he warns.On AI, the technology is moving so quickly that there is a need to be thoughtful, be able to pivot, and re-underwrite these businesses. In the liquid market, it’s important to have the flexibility to buy or sell, and to get out of situations where that thesis might have changed. In illiquid markets like private credit, he advises to focus more attention on structures that protect from assets being stripped out, from cash leaking out of the system. “Even if you do worry that maybe it’s a little less resilient, having that structure could be the key differentiator of having ball control,” he says.“Even if you do worry that maybe it’s a little less resilient, having that structure could be the key differentiator of having ball control,” he says.Sheldon also reiterates that the private credit market is not just the direct lending market any longer. The bigger part of the private credit market is asset-based finance, which is financing the real world economy, whether it be consumer loans to hard assets like aircraft or commercial lending, or music intellectual property. ABF is a huge growing market and is a great diversifier to portfolios today, he reckons.KKR credit investor letter: https://bit.ly/4aYV4pN

Europe has mostly missed the AI boom that’s driven a large part of US economic growth, says Mathew Cestar, president of Arini Capital Management, on the latest episode of Credit Exchange with Lisa Lee, taped in the London offices of the alternative asset manager. But that actually makes European credit more appealing, because while the intersection of technology and AI is an exciting equity story, that intersection in credit can involve “a lot of risk.”Cestar, who was once the co-head of investment banking at a large global bank, expects to see a broadening of M&A deals in terms of size, sectors and geographies, given the supportive interest rate and anti-trust environment. He also sees continued interest in Europe from global investors. And he welcomes more regulatory scrutiny for private credit, predicting that will result in better players in the market.“We’re super-embracing the fact that regulatory folks are now focused on private credit,” says Cestar. “If you want a market to grow sustainability and consistently, the regulatory framework is critical.”On the private credit market, Cestar forecasts troubles, that will lead to more dispersion of returns among shops. “We’re expecting an uplift in some of the private credit defaults,” he says. Defaults in the space have so far been relatively muted, but “that will start to change, because they can’t defy gravity,” Cestar believes.

“We have this great tool out there called AI, and we haven’t 100% figured out how to implement it yet,” says Mark Jenkins, co-president and head of global credit & insurance at Carlyle, on the latest edition of ‘Credit Exchange with Lisa Lee’. Jenkins predicts that the next stage is going to be how corporates implement AI into their workflows, and that the process is “really in the first innings of implement”.OpenAI, Anthropic, and many others are developing tools for workflow, and Jenkins predicts they will take “not years, but several months” to impact systems. Carlyle, for example, is already using AI to help its investment group be more efficient, and to consume massive amounts of data in ways that would be difficult without AI, says Jenkins. But one has to use AI appropriately, he adds. “It’s not going to make the decision for you.”While change has been a constant feature during Jenkins’ 35-year career, nothing has been like AI in the past three years. Embrace the change and incorporate it into what you do, because typically, those are the ones that prosper, he counsels.On the broader investing climate, Jenkins is positive about the macroeconomic environment for the next 12 months. But moving out to 2027 and 2028, inflation may rear its head again.

“Whether it be in the high yield bond market or in the leveraged loan market, even the hint or threat of AI impeding on really any sector – you see pretty significant downside,” says Mitch Garfin, co-head of leveraged finance at the world’s largest asset manager BlackRock, on the latest episode of Credit Exchange with Lisa Lee.Garfin is constructive on the market generally, with growth continuing to “chug along” and inflation currently well-contained. He also identifies significant opportunities from AI, including ongoing data centre build-outs contributing to a significant uptick in supply in the high yield market that is likely to continue.But, he notes, there have also been situations where bonds and loans are down anywhere from a couple of points, and in some cases 5 or even 10 points, on “the immediate sort of threat” from AI. “It’s something to keep an eye on,” he says.Discussing the high yield market specifically, Garfin observes that consumer and retail continue to lag. “We’ve been underweight retail, consumer products, restaurants, leisure – a lot of the sectors that are going to be more impacted by a declining or weaker low-to-middle-class consumer,” he says.He also gives advice to younger industry hopefuls, including staffers and investors.

“It’s going to be a slow build, and we think a sustained multi-year increase in activity,” says David Miller, head of private credit and equity at Morgan Stanley Investment Management, on the latest episode of Credit Exchange with Lisa Lee, speaking about M&A and LBOs.The geopolitical headlines haven’t yet changed the economic picture, says Miller. But over time, they may impact on confidence and fan uncertainty.“As uncertainty rises, risk premium will rise. So that can change the calculus - but we’re not seeing it in the markets yet,” he observes.Miller also discusses running both the private equity and private credit businesses at Morgan Stanley’s asset management arm, a team that numbers more than 150 strong, and what it’s like being part of a global bank.

R.J. Gallo, deputy CIO of fixed income at Federated Hermes, addresses the recent DOJ move to investigate Federal Reserve chairman Jerome Powell and the possible impact on monetary policy, on the latest episode of ‘Credit Exchange with Lisa Lee’.Gallo, who will take up the fixed income CIO role in May, says we might see a more divergent FOMC where the votes actually matter.“Does that make them more hawkish? I don’t know. I’ll tell you this. It certainly won’t make the hawks more dovish,” he says.“It’s important to realise that many presidents get frustrated with the Federal Reserve,” adds Gallo, who prior to joining Federated Hermes in 2000, was at the Federal Reserve Bank of New York. But what has been extraordinary in the Trump administration has been the full-on verbal assault of the Federal Reserve and the resultant “feud between the White House and the Fed.” And the most recent development of the DOJ subpoena has to be viewed in that context.On fixed income, Gallo takes a bit more of a cautious view. While his base case is for the US economy to grow in 2026, he is keeping some powder dry to reassess, in case there’s spread widening. “We don’t just want to chase an already highly-valued market.”Another thing to watch is AI, which has accounted for a large portion of equity returns and stimulated the US economy through high capex spending. If we see poor returns to AI capex, that could challenge equity and credit valuations, Gallo says.

“I come into the year extremely bullish about fixed income and credit in general,” says John Lloyd, global head of multi-sector credit at Janus Henderson, on the latest episode of Credit Exchange with Lisa Lee. The asset manager oversees nearly half a trillion dollars of AUM.Lloyd speaks about how markets are shrugging off some recent big geopolitical events because they do not impact earnings today and are viewed as one-off events, bespoke to a single country. Instead, they are focused on positive GDP growth as well as the Fed, which will be a tailwind to investing, as the US central bank is now injecting liquidity back into markets.Artificial intelligence is also a focus. The hyperscalers will increase their capex budgets because they are in a race over the next several years.Google, Facebook, Oracle and others are all issuing a tremendous amount of debt to support that capex growth. “You are going to see a lot of supply increase this year from AI,” Lloyd says. “I think that’s going to be a little bit of a negative supply technical in the fixed income markets this year, especially in the investment grade space.”

While credit is “probably a four-letter word right now,” it is doing reasonably well, says Tom Majewski, founder and managing partner at Eagle Point Credit Management.“But headlines around the space will continue, and perhaps that unto itself creates some credit challenges,” he adds on the latest episode of Credit Exchange with Lisa Lee.Majewski unpacks the First Brands collapse and fraud in general, noting there’s been a significant decline of occurrences of fraud in the US economy since the Sarbanes-Oxley Act of 2002.He also discusses liability management exercises (LMEs), or coercive restructurings, sharing Eagle Point’s upcoming research that shows there’s been over 100 LMEs in the last five years. “If there’s a little over 1,000 loans, that’s about a 2% LME rate per year, separate from defaults.”

The degree of inflation the past few years has stretched the ‘K’ that defines the K-shaped economy, says Cindy Beaulieu, chief investment officer at Conning Noth America, in the latest ‘Credit Exchange with Lisa Lee’ podcast. Asset valuations and home prices have further added to the pressure.The labour market is central to consumers in both the top and bottom of the K. The upper cohort are participating in the economy in a strong way. The bottom cohort are also participating – but even a modest amount of inflation is painful for them, because the base level of prices now is so much higher than it was just a few years ago.“I would put right in the centre of those two lines of the K, the labour markets,” says Beaulieu, who sets fixed income and equity strategy for Conning North America, which serves the insurance industry and has nearly $200bn in assets under management. “It’s kind of like a rubber band. As long as it doesn’t snap, it holds the K together.”In terms of investing, Beaulieu thinks corporate fundamentals are good. While valuations are stretched, all-in yields are accretive, particularly to fixed-income portfolios. She likes the structured areas and private placements.

The driver for 2026 will be the real step-change in capex requirements all around the AI data boom and the needs of hyperscalers, said Fabianna Del Canto, co-head of EMEA capital markets at MUFG, on the latest episode of the ‘Credit Exchange with Lisa Lee’ podcast.“The absolute quantum required by the data centres dwarfs really any other type of infra-spend that we’re seeing,” said Del Canto.Among myriad other effects, AI has brought about a previously-unimaginable type of demand on, effectively, the entire energy supply ecosystem. Because it’s impacting such a large-scale industry and multiple secondary ones, this is a “real seminal moment and period in time, in terms of how we’re shaping the economies going forward for the future,” she added.But financing the AI boom will look different in Europe and the US.“In Europe, you’re seeing a lot of discussion amongst leaders in the energy space trying to solve this from a sustainable angle,” Del Canto said. “It’s not energy at any cost or any type.”Beyond data centres’ capex needs, Del Canto expects capital markets to be just as busy in 2026, if not busier. As a result, there’s a risk of spreads widening.“We see a very healthy pipeline, and supply is going to keep ticking up in our view,” she said.

Innovation on the liability side is allowing insurance companies to change their funding costs and be more competitive, says Gary Zhu, deputy chief investment officer of insurance at AllianceBernstein (AB), in the latest episode of ‘Credit Exchange with Lisa Lee’.Zhu discusses the proliferation of insurance capital into private assets. He explains that dynamic has to do with lengthening lifespans and a declining lapse rate, the percentage of policies that don’t renew, which has allowed insurance firms more flexibility on liquidity.“They can deploy that capital into private assets, and earn that incremental spread, without giving up anything that they needed,” he says.On the recent stock market volatility, Zhu says that staying invested during good times and bad is important for equity investors in general. On investing, AB’s insurance silo, which has around $200bn in AUM, has been overweight allocations to residential housing credit.“We like the housing market in the US,” he says. “So [the] residential credit market seems to be a place that people have underappreciated the value in the housing markets.”

The end of the US government shutdown has paved the way for a “renewed melt up,” says Matt King, founder of Satori Insights, on the latest episode of Credit Exchange with Lisa Lee. Not just risk assets like equities and credit, but things like gold and Swiss francs, as people worry about how this ends – even as the tide of easy money pushes everything upwards, says King, formerly Citi’s global markets strategist and one of the most widely-followed commentators on financial markets.Since early 2024, the linkage between central bank liquidity and credit spreads and equities has weakened somewhat. It’s not disappeared entirely, but in equities especially, different factors have had an impact. Exuberance and excitement around AI are part of the story, King says, but there’s also ongoing support from fiscal policy and huge fiscal deficits, as well as the massive growth in repo to around a trillion dollars a year, which is becoming increasingly important.“It’s about how much money we’re creating and where that money is then going,” King argues. “I think that’s the main mistake investors have made. If you’ve tried to invest on the basis of your economic view, for over a decade, you’ve struggled, because the drivers here are markets first, and then the economy bringing up the rear.”

The bankruptcies of auto sector firms First Brands and Tricolor Holdings hold “lessons for the future” for credit investors, says Tetragon co-CIO Dagmara Michalczuk on the latest episode of Credit Exchange with Lisa Lee. “The governance issue, although it seems like a soft and fuzzy idea, is incredibly important,” Michalczuk says. “Investing with folks that are not transparent – that has its risks. Lessons can be learned and should have been learned, in both instances.”Overall, Michalczuk’s assessment of the general macro outlook sees slow growth, “slower than what we saw post-pandemic.” With this said, she agrees with the consensus view in the market that 2026 might see a reacceleration of growth, given the downward trajectory of rates, significant fiscal stimulus in the US and Europe, deregulation, and the ongoing capital investment in AI.Credit investors should be prudent and have informed views and opinions on AI, Michalczuk says. At Tetragon, Michalczuk’s team is adapting by looking across their portfolio, “not just [at] software and tech companies, but all of our exposures,” considering both potential positive and negative impacts. “The big concern… is we’re missing something, [that] a business very rapidly becomes undone by a newcomer that disrupts the industry.” That’s why continual reanalysis over time is important, Michalczuk says.

“There are lots of mixed signals out there,” says Chris Wright, president of Crescent Capital Group, on the latest episode of Credit Exchange with Lisa Lee. That’s creating uncertainty. “When we think about the investment environment, we approach it with caution.”On the bankruptcies of First Brands and Tricolor, Wright doesn’t see them as canaries in the coalmine or a tipping point in the economy. But they do show that due diligence matters. There were audit flags, governance failures, and opaque structures that sounded warning bells. “We have to be diligent in our work,” Wright notes.Crescent, a global credit manager with almost $50bn in AUM, recently launched a CLO ETF and has plans to introduce other product, Wright adds. While too early to say whether Crescent will start a European CLO management business, it’s “certainly something that is on our drawing board and we’re spending a lot of time thinking about and assessing,”, Wright says.

Bret Leas, co-head of asset-backed finance at Apollo Global Management, speaks about this booming segment of private credit with Credit Exchange host Lisa Lee, managing editor at Creditflux and editor-at-large at Debtwire. Leas can see the private credit market exceeding the current growth forecast of $40 trillion, and that will have repercussions. “The financing toolkit has gotten so much broader,” he observes.Leas says both public and private investments can be risky and safe. He cautions that there are excesses in the system. Leverage has been ticking up steadily and documentation, especially in the public markets, has been very weak for some time. “There is a level of diligence that you need to do when lending money,” Leas says.For ABF, Europe probably represents a bigger opportunity than the US, Leas contends. The continent has a very narrow banking system and an insurance system that is underinvested. “You have countries that have been so far behind in their build that the ability to catch up through traditional means is very, very unlikely.”Leas also discusses the war for talent, trading of investment-grade private loans, and the knock-on effects of the spending on artificial intelligence.

“The idea that default rates will go up over time is not particularly difficult to get to,” says Jake Pollack, head of global credit financing and North America credit trading at JPMorgan, on the latest Credit Exchange podcast with Lisa Lee. “The markets have been very sanguine, and it won’t be surprising if we see more defaults in the coming months and even years.”Corporate America is doing well, despite some headline-grabbing bankruptcies recently. But Pollack notes that spreads are very tight, which means there’s a lot of capital chasing opportunities. As recent bouts of volatility have demonstrated, it doesn’t take a lot for spreads to widen out.Pollack also tips trading in private credit to increase, especially if the definition of private credit is widened to incorporate private investment grade debt and structured notes. But trading in traditional direct lending loans is less likely to take off.This means that there will be certain areas where that illiquidity premium goes away as the market looks more like its public counterparts. There will be other areas that are not widely held, that can probably keep the spread premium because it’s simply much less tradable, Pollack says.

“Underneath is a lot of volatility. Companies are struggling. You’re seeing really wide dispersion,” says Greg Peters, co-chief investment officer at PGIM Fixed Income, on the latest episode of Credit Exchange with Lisa Lee. Companies, both public and private, are defaulting at a higher rate than you would expect given the macro backdrop.Investors have been too quick to dismiss the possibility of a return in inflation. Peters pegs the probability of the US economy overheating at 25%, and higher than the probability of a recession. The US has fiscal stimulus coming through, likely a more easy Fed, and together with deregulation and some other factors, there’s the real risk of overheating next year, he says. He adds there’s also a 10% probability of a productivity boost from AI.Markets are also struggling with the near-term effects versus the long-term, Peters notes. The case of France is what happens to a sovereign that’s overindebted, where the political system is called into question. “This is very much a canary in a coal mine,” he says.

“It’s a huge differentiator” to have dedicated and experienced personnel to deal with struggling borrowers, says Tim Lyne, CEO of private credit specialist Antares Capital, in the latest Credit Exchange podcast with Lisa Lee. Recent entrants, funds raised in the past five years, often do not.On the M&A front, Lyne doesn’t expect to see a great volume of M&A transactions this year, or indeed in the first quarter of next year. That’s because Antares’ volume on the new business side is average: “if it was going to be great, we would be seeing some of those deals come in the shop already,” he says.Private credit could have financed the $20bn of debt for Electronic Arts, but it would have been a stretch. But that will not necessarily be true for much longer, he observes. “If I fast-forward 3-5 years from now, I think $20[bn] will not be challenging.”There are also too many players, Lyne says, which is compressing fees. With more than $85bn in AUM, Antares has scale, and Lyne says the biggest private credit lenders will continue to get bigger. But for the players in the industry that are not of scale, “it’s going to be incredibly challenging for them to continue to grow over the next five years.”

“Existing investors are probably too long the dollar. They enjoy a very good ride. Valuations are expensive. It makes sense to take profit,” says Grégoire Pesques, CIO, global fixed income at Europe’s largest asset manager Amundi, in the latest Credit Exchange podcast with Lisa Lee.The US, UK, many Eurozone countries, Japan – all have been spending profusely, causing deficits to be a big issue almost everywhere. Describing the fiscal and macro landscape, Pesques details where Amundi, with €2.2 trillion in AUM, is investing. He is buying UK Gilts because the market hasn’t priced in the possibility that growth may slow, and the Bank of England then cuts interest rates.Germany is prepared to turn on the fiscal spending taps, yet will stay one of the safest countries in terms of debt-to-GDP ratios. “There will be a premium for the government that keeps some sort of orthodoxy and has a very strong balance sheet,” says Pesques. There are also pockets of emerging markets that are great investments right now, he adds.There is a big need for diversification away from the dollar and away from Treasuries. But it will take “ages”, he notes, and the rebalancing will be progressive.“It’s always better for a risk-adjusted return to have more diversification in your portfolio,” says Pesques.

“Long-term, I think the game is over from a buyout perspective. I think private capital has won that game,” says Randy Schwimmer, vice-chairman and chief investment strategist at Churchill Asset Management, a leading middle market financing and investment firm with $55 billion in AUM.In the latest episode of the Credit Exchange podcast with Lisa Lee, Schwimmer notes 90% of the leveraged buyouts completed this year were financing by private credit in the traditional middle market space. As for the large-cap deals, the bigger loans that can be multi-billions of dollars in size – while there, too, the majority of LBOs were done by private credit firms, banks have found a way to stay relevant by undertaking refinancings and repricings. Banks also still have significant market share in straight corporate lending and for certain specialist sectors.“It’s a healthy ecosystem right now, where everybody is playing a role,” Schwimmer says.Speaking to banks’ aspirations to create a secondary trading market for private credit loans, that will be difficult, especially in the middle market, Schwimmer predicts. He adds that many have tried. “Illiquidity will still mean something in the traditional middle market,” he says.

“One interesting canary in the coal mine that has not been materially recognised, is the health of the consumer,” says Dan Zwirn, CEO, CIO and co-founder of Arena Investors, on the latest episode of Credit Exchange with Lisa Lee.Zwirn has observed delinquencies in unsecured obligations increase materially, as well as stress in areas like the sub-prime auto market. Original issue consumer lenders are selling off ‘charge-off paper’, which is distressed unsecured debt, at material and elevated amounts.Financial assets are providing the proper signals and indicating trouble in the economy, he says.“What we have seen since the GFC is that the innovation around the thwarting of price discovery has never been more rampant,” he said. “An example of how that touches the consumer is BNPL (buy now, pay later), where certain types of buying don’t necessarily hit consumer credit scores.”But policymakers do have a lot of tools in the toolkit to delay problems, which can stave off a traditional economic crisis. As a result, barring any extraordinary geopolitical events, the market is instead likely to experience a “slow grinding decline,” similar to what Japan experienced with its struggling economy.

“Volatility is now certain. Before, we feared chaos because no-one knew what was coming. Now, it’s priced in” – Alan Schrager, senior partner at Oak Hill Advisors, in the latest episode of Credit Exchange with Lisa Lee.Focus on Treasury markets, advises Schrager. “As a professional investor, what we look at are actually the Treasury markets. They’re sending this signal that there’s this risk inherent,” he says, speaking to the recent rise in long-term sovereign yields of developed countries. “You always think of the risk premium of the US Treasury to be zero. And now that's really what's changed is that there is a risk premium in there.”Schrager also discusses how market volatility, macro risk, and private credit are shaping today’s investment landscape. He sees opportunity in stable companies with stressed balance sheets and notes that private credit spreads have held firm while public markets have tightened.Oak Hill Advisors, which has nearly $100 billion in AUM focused on sub-investment grade corporate debt, is now focusing on trying to provide capital, in either restructuring or refinancing transactions that take decent companies with bad balance sheets and reorganise them.

The likelihood of a September rate cut has edged higher. “They will move ahead with that,” predicts Brad Rogoff, head of global research at Barclays, in the latest Credit Exchange podcast with Lisa Lee.He adds, however, that the market “does need to get used to lower job numbers,” citing what’s currently taking place with immigration and fewer people coming into the workforce. “Just to have a healthy job market, we're not going to have the same job gains as we had.”Rogoff expects inflation to be above the Fed’s target for the back half of this year and into 2026. Chances for a recession in the near term are low, but over a longer time period, perhaps the next two years, the risks are definitely increasing.Fiscal spending will provide some stability as a counterpoint. The yield curve could steepen further and less so than if the US Treasury was issuing in a different way, or if questions around Federal Reserve independence become even more acute.Meanwhile, in Asia, China is going to be a big focus for the rest of the year. “We’ll probably see some stimulative effects implemented in China, but I’m not convinced that there's any bazooka coming,” Rogoff observes. “If we see growth continue to lag in China, that’s probably got to be your biggest focus at this point in Asia.”But a slowing economy is still a positive backdrop for credit and spreads should be tightening, though perhaps not to the degree they have. While Rogoff worries a little bit about the complacency in the market, when he looks down the credit spectrum, markets are proving leery of riskier assets, such as those rated triple C. “It hasn’t necessarily been the rising tide lifting all boats,” he points out.

“We’ve been increasing our exposure to prime office,” says Michael Buchanan, chief investment officer at Western Asset, a fixed income specialist owned by Franklin Templeton, in the latest Credit Exchange podcast with Lisa Lee.New York office property, especially the higher end, is doing very well, Buchanan observes. Also attractive are hotels, lodging, offices, multi-family accommodation and warehouses.Buchanan predicts a record year for commercial mortgage-backed securities (CMBS). “That’s really where our dollars that we have to allocate are going right now. And we probably have one of our highest exposures that we’ve had to CMBS in quite a long time.”On the macro front, Buchanan’s base case is for a temporary pickup in inflation due to tariffs, which will then revert to trending toward – though perhaps not hitting – the 2% target set by the Federal Reserve. The question is really about who will pay for tariffs – and it’s not clear exactly how that will play out.“Watching margins will give us a really good indication if the importers are paying for those tariffs,” Buchanan notes.Western Asset, which has nearly USD 200bn in assets under management, has been trimming their exposure to investment-grade and high-yield credit, due to valuation concerns. There’s still the likelihood of seeing some elevated volatility that will result in some spreads pushing wider. When that happens, it will give Western Asset a better entry point for adding some of that exposure back, Buchanan says.

“From what I could see in our proprietary data, we are seeing a bit of a slowdown,” says Lauren Basmadjian, head of liquid credit at Carlyle, a powerhouse with USD 199bn in credit assets under management, in the latest ‘Credit Exchange’ podcast with Lisa Lee.It's early days, with only about 10% of the portfolio companies that Carlyle lends to having reported thus far. Cautioning that it’s not fulsome data, Basmadjian says that companies are reporting low-single-digit growth in the second quarter, down from mid-single-digit growth in the first. And it’s happening in both the US and Europe.When investing, be conservative right now, advises Basmadjian. For example, leveraged loan spreads have fallen to remarkably low levels, with some at tights not really seen before the Great Financial Crisis. Between the two markets, the European loan market offers better value, she believes.“When I look at the loan portfolios that we could put together in Europe versus the US, you probably capture an extra 60 basis points or so,” Basmadjian says.As for LBOs, Basmadjian says there are more processes going on in the background, but it’s too early to tell whether they’re going to come to fruition. “When pencils went down in April, pencils are back up now,” she notes.“But it takes a while to get the engine going. And we don’t expect to see a lot of new LBO and M&A activity for the remainder of the year. That saddens me to say. But I do think that there’s a lot more in the background, and it just takes a while for it to come to our market.”

“There’s nothing more compelling than live sports,” says Mark Attanasio, co-founder of asset manager Crescent Capital Group, on the latest Credit Exchange podcast with Lisa Lee. The marketplace, now some USD 3tn in size, has the most-watched programs in media, as well as the ability to bring communities together.Attanasio, who is the principal owner of the Major League Baseball team the Milwaukee Brewers, has become the majority owner of the English football team Norwich City. The self-described ‘Ted Lasso’ of English football owners expects to take the team back to the Premier League in three to five years.His advice to others wanting to invest in sports: start by being careful about ego purchases, even as a minority owner. Because it’s not easy to win.There will be trading in minority investments in sports over the next decade or two as that market matures, predicts Attanasio.Turning to credit, the co-founder of Crescent, which is approaching USD 50bn of credit AUM, says he expects to see more private credit loans trading, and that the asset class will “definitely grow to a secondary market.”“All the markets, as they reach a [certain] size, go that way – including, by the way, sports,” he says. “You have a lot of secondary interest in sports teams that trade the NFL,” says Attanasio, who has seen particular minority pieces of US football teams selling for very high valuations.“You’d expect to see additional liquidity in minority investments in sports over the next decade or two, as that market matures. And I think it’ll be good and bad for the market,” Attanasio predicts, pointing to better liquidity, but tighter spreads for investors.

Corporates have showcased resilience in navigating policy shifts, according to Amanda Lynam, Head of Macro Credit Research within the Portfolio Management Group at BlackRock, on the latest edition of the ‘Credit Exchange’ podcast with Lisa Lee.Lynam also noted the surprising resilience of corporates to navigating a higher cost of capital.But she advises monitoring the very important feedback loop – the link between corporate margins, the labour market, consumer spending, and overall economic activity and growth. “Right now, we are pretty constructive. Would characterise it as cautiously optimistic, but that could change very quickly – just like we’ve seen in other episodes,” Lynam said.To effectively monitor that feedback loop, investors should focus on the high-frequency commentary coming from corporate management teams. “That was instructive during the pandemic, about the true length of supply chain disruptions, which was actually much longer than many market participants and economists expected,” she said. “And I think it will be informative in this environment as well, both positively and negatively, about how corporates can navigate this environment. So that’s the one thing that we are watching.”Lynam makes a bit of an out-of-consensus call – selectively move down in credit quality in spite of the policy uncertainty and the residual overhang from that. Oftentimes, in an environment like this one, the automatic reflex action is to generically move up the ladder in quality. “Actually, that may not be the right call this time around,” she said.At the same time, she doesn’t advise chasing all the way down the risk spectrum, into those pockets of the market that were already under pressure. “We wouldn’t be chasing all the way down to triple Cs,” she said. “But, for example, investors that are concentrated on the investment-grade market, we like moving down into the triple B pocket of that market – because, in our view, that’s an opportunity to pick up some additional spread, some additional risk premium, but not compromise too much on credit quality.”“I actually think being a bit more opportunistic and not shying away from credit risk, but taking it in a selective way, is the right call,” she observed.Investors can also capture some pretty attractive all-in yields in European corporate credit, she added, while the European corporate credit market also has some pretty favourable technicals.But with that said, Lynam doesn’t see a wholesale reallocation from US dollar-denominated assets into Europe. “The case for American economic growth, productivity, the private markets in the US, for example, funding innovation – I think that’s a really compelling story.”

“I’ve continued to see large investors, both on the individual side [and] on the institutional side, continue to rotate their portfolios into fixed income,” said Wayne Dahl, co-portfolio manager of global credit and global credit investment grade strategies at Oaktree Capital Management, on the latest edition of the ‘Credit Exchange’ podcast with Lisa Lee.Economic growth will slow, forecast Dahl, noting the challenges from tariffs and their impact on inflation, consumer sentiment, and the job market.“We have to be eyes-wide-open to the fact that maybe some of those real positive factors in the first half might not have the same impact in the second half of the year,” he observed.But that’s a good environment for credit. Despite credit spreads being near their tights, the sub-investment grade segment remains at a pretty attractive level, Dahl said. Investors can earn in the sub-investment grade credit space what some people would consider almost equity-like returns, but with less risk and less volatility.High yield bonds, leveraged loans, structured credit such as CLOs, CMBS, RMBS – all these earn above seven percent. “And that’s a pretty good-trade-off for portfolios, to lock in that coupon, [to] be able to de-risk your portfolio, [and] still meet your objectives,” Dahl said.That being said, Dahl cautioned there is stress building, pointing particularly to leveraged loans. “I think, as an active manager, that’s something you’re keenly aware of,” he said.

“We've done our first trades and some of the first trades in the industry in investment grade private,” says Matt Eagan, who heads the full discretion team at Loomis Sayles and oversees USD 80bn of AUM, on the latest edition of the Credit Exchange podcast with Lisa Lee.Eagan, who sits on the asset manager’s board of directors, likens investing nowadays to Ozzy Osbourne’s song Crazy Train. Structural changes including the ageing of the workforce, the heightened need for security, and the growing US fiscal debt are inflationary factors, and should change how one conceptualises investing, says Eagan.Credit is a good investment right now, Eagan notes. However, rather than looking at spreads, which are currently tight, Eagan advises focusing on the risk premium.“People remember episodes where credit has been very tumultuous because that’s where the excesses were,” he says. “Today, they’re not there. The private credit market has derisked the public sector. The private credit market is a behemoth that’s almost become the mirror image of the public markets.”Private credit will evolve including a huge portion of the market becoming more liquid. Loomis has bought private investment grade credit in the secondary market. It has also co-mingled private credit into its public portfolios, including mutual funds. “We’re not the only one doing this,” he says.“I think investment grade privates will be one of the biggest ones that'll get to this point, where you’ll see much more secondary market activity.”

“We know there’s a big pan-European need for financing,” says Mathew Cestar, president of Arini, one of the fastest growing alternative credit managers, on the latest edition of the Credit Exchange podcast with Lisa Lee.Cestar, who has more than 25 years of experience in European credit markets and once headed a major investment bank, details the evolution of capital markets in the region, from high-yield bonds to leveraged loans and now, private credit.“European companies have never really had a love affair with public capital markets, largely in the sense that they are cookie-cutter and often volatile. Many of these companies, particularly at the mid-size [level], tend to be family owned, multi-generational, and private – they require something much more bespoke, relationship-driven and meaningful,” he says.Via lending to the ‘real economy’, Cestar sees a significant opportunity across various sectors in Europe to go beyond lending to companies owned by private equity shops. And he discusses the recently-announced partnership Arini inked with Lazard – the first private credit and bank partnership of scale in Europe.“As global pressures apply, we’re seeing not just M&A activity rise, but essentially the streamlining and reshoring of European businesses, and so there’s ample opportunity for capital investment to facilitate that,” notes Cestar.

“We’re at a reasonable balance now.” That’s the view of Stephen Ketchum, founder and CEO of Sound Point Capital Management, regarding the state of credit markets in June on the latest edition of the ‘Credit Exchange’ podcast with Lisa Lee.Sound Point, an alternative asset manager with over USD 43bn in AUM, de-risked its portfolio earlier this year, when the firm felt there was a little bit too much optimism. It then added risk when sentiment skewed toward an excess of pessimism in April.“We are in a world where there’s been a real paradigm shift in the way that our economy works,” Ketchum said, on the fading worries about an impending recession sparked by the ‘tariff tantrum’. The US in particular, but the developed world more generally, have moved on from what was, decades ago, a manufacturing economy with somewhat-predictable economic cycles. The US is now overwhelmingly a service economy, Ketchum said. Because of that, the last 15 years has seen two recessions, both of which were “self-inflicted”.Tariffs will be a factor going forward. While Ketchum doesn’t expect that the US will impose 50% tariffs on friendly countries, there will continue to be negotiations, “so we’ll be prepared to manage through that,” Ketchum said. “The companies that we lend to will be prepared to manage through that.”But for its private credit book, Ketchum could neither de-risk, nor add more risk. The most important thing is to underwrite for years, make sure one backs companies that have high barriers to entry in their market, and most importantly, have management teams you trust will be able to pivot when they need to, he advised.

While private credit broadly has showcased resilience and strength, “under the surface, not everything is as rosy,” according to James Reynolds, global co-head of private credit at Goldman Sachs. Reynolds spoke with Lisa Lee, managing director at Creditflux and editor-at-large at Debtwire, at this year’s Debtwire Private Credit Forum Europe in London on 17 June.Goldman has started tracking the debt-to-equity swaps in the industry because LPs around the world wanted to know what is really happening. Since 2017, the European direct lending market has seen around 120 debt-to-equity swaps across the industry – and interestingly, around half that number have occurred in the last two years.They tend to impact deals involving smaller companies from 2017, 2018 and 2019, and in more cyclical sectors such as consumer, retail and discretionary, Reynolds noted.That is resulting in real bifurcation in European direct lending. “You are going to start seeing dispersion in performance – it’s happening,” he said. “The question now that LPs should be asking is: what are the capabilities of direct lenders to go and own these businesses? It’s a different job than lending to a business.”Certain teams are going to come under pressure and there’s going to be more consolidation in the industry – indeed, it is already occurring. The landscape in direct lending in ten years’ time is going to look very different to today, with, in all likelihood, fewer, larger players, Reynolds said.

The mood at the Global ABS 2025 structured credit industry confab this week was positive, according to bankers, asset managers and investors at the Barcelona conference. Taped (mostly) live in Spain, Credit Exchange host Lisa Lee caught up with guests from Bank of America, hedge fund King Street, Blackstone and Federated Hermes.Alex Batchvarov, managing director, global research at Bank of America: When we take a look at the macro picture, there are certain changes which are gathering speed, and I think to some degree – maybe to a large degree – are irreversible.The capital flows are changing direction. US exceptionalism is now being questioned.[For] the structured finance sector, there are not many reasons for concern with regard to credit performance or structures or documentations.Young Choi, global head of trading at King Street:The tone was relatively constructive. There seems to be a preference from the crowd in Barcelona for European credit versus US corporate credit.A couple of years ago if you asked that same question, it would have been reversed. There were a lot of things that concerned people about Europe. It hasn’t completely flipped, but I think the narrative has definitely changed.Alex Leonard, senior managing director and head of European liquid credit strategies at Blackstone:We're definitely seeing a lot more investors coming from wider locations. Previously it would have been primarily European-only. We’re now talking to Asian investors, Canadian investors, African investors, all wanting to discuss that opportunity in Europe with Blackstone. So I think that’s positive.We do clearly need to remain cautious, but certainly, looking at the fundamentals and the real data we’re seeing across all of our portfolio companies, we generally continue to feel good about European credit.Andrew Lennox, senior portfolio manager at Federated Hermes:There's a lot of issuance in the pipeline, both on the ABS side and the CLO side. We’re going to have a busy post-conference period.We’re starting to see some early signs of a pivot away from the allocations toward the US and investors looking for opportunities elsewhere, and Europe seems to be a beneficiary of that. It seems that Europe is picking up some momentum, whereas the US had it for a number of years. The US may be seen as a less reliable trading partner, but also as an investment opportunity.

The M&A market is normalising, said Matt Theodorakis, co-head of European direct lending at Ares, in the latest ‘Credit Exchange’ podcast, recorded at the SuperReturn International conference in Berlin, Germany.“People are looking to do deals going forward” after taking a pause following ‘Liberation Day’, Theodorakis told host Lisa Lee, managing editor at Creditflux.Investors – limited partners – are going to want to get paid back. In the next six to twelve months, their patience is going to wear thin, Theodorakis said. “People are going to really start to push and say, ‘Hey, guys, enough. There’s no reason not to start a sale process.’ We’ll actually enjoy the benefit of that.”Before that, 2025 started out as a strong year. Direct lending in Europe has been deploying almost 50% more than a year ago, and the use of proceeds for M&A has been increasing. Theodorakis is particularly extied about how artificial intelligence can impact the private credit business, particularly from the perspective of risk management. As a lender, Ares gets quality and frequently-updated information on their borrowers.“We’ve been doing a pretty good job of it, but if we can turn that info into machine learning [and] getting ahead of trends, that is an absolute game-changer.”

Investors aren’t being paid enough a premium for the risks in US corporate credit, said Bryan Whalen, chief investment officer of fixed income at TCW, on the latest ‘Credit Exchange with Lisa Lee’ podcast.Whalen, who oversees USD 180bn in fixed income assets, contends investment-grade corporate credit spreads should be paying 50% more than they are. Investors should be getting 120 basis points of spread for IG bonds, but today they are getting paid close to 80bps, Whalen said.During the April volatility, there was a repricing of credit risk, but it didn’t lasted long enough to call the markets broken. But markets aren’t out of the woods, and it’s on the list of possibilities this year, according to Whalen. There are a lot of things that could cause volatility and if the Federal Reserve seems reluctant to rush to rescue markets, “you might actually see the market is broken because of the lack of liquidity,” Whalen said. “And it will stay broken, and that will magnify the downturn.”While Whalen likes being underweight corporate credit, he sees attractiveness in parts of the securitised market – mortgage-backed securities in particular, because some buyers that have traditionally been in the space have temporarily pulled back. Moreover, while Whalen doesn’t like US high yield bonds, he does like some high yield bonds in emerging markets. Asia has the potential to outperform relative to the rest of the world. On European growth prospects, markets may have gotten a little ahead of themselves on the narrative of a fiscal spending boost, and taken a pause on the approach of what Whalen describes, tongue-in-cheek, the “exporting of exceptionalism.” Still, there are some good opportunities in euro-denominated investment-grade corporate bonds, where investors get paid a decent amount of additional spread for the same company in a euro currency versus US dollars, he noted.

“Look at credit markets, they behaved quite differently this time,” said Eddie O’Neill, co-head of global liquid credit at KKR, about the period of volatility that whipped global financial markets in April. “They were very stable.”When equity markets were volatile, credit markets did see some selling off but in a very orderly repricing of risk. There was “no blood in the streets, no sustained buying opportunities,” O’Neill told host Lisa Lee at the Creditflux CLO Symposium 2025 in London. That there were three reasons: 1) the nature of the shock, which is policy driven, would take time to play out and the end result of it is still fairly unknown; 2) credit markets have matured in the last five years with new pools of capital becoming more significant; 3) the markets have been starved of assets and been technically driven through 2024 and 2025 with money on the sidelines waiting to step in.The European credit markets are more stable than the US, contended O’Neill. There is no significant ETF buyer base in Europe, the fundamental health of European corporates is pretty good, and Europeans have had the political realization that they need to turn things around. It's not without risk as maintaining political cohesion in Europe is difficult. Europe still has an Achilles' heel---energy costs and demographic will be a challenge. KKR is generally more bullish on Asia, said O’Neill. Despite the tensions between the US and China and slowdowns in the Chinese property market, Asia has the potential to continue to be a big driver of global growth. Asian credit will become a very big market over the next number of years, and investors should be looking at the region, he said. In particular, the investment grade credit market in Asia currently delivers significantly greater returns with lower defaults and loss rates compared to the US investment grade market.

People fail to give the private equity funds the credit they deserve, said Susan Kasser, head of Neuberger Berman Private Debt, on the latest ‘Credit Exchange with Lisa Lee’ podcast.Whilst in terms of investment opportunities, it has been a less productive start to the year, private equity funds have found interesting investment opportunities. Neuberger Berman has already committed to financing a number of new leveraged buyouts this year. There are a surprising number of companies that appear to be quite insulated from tariff exposure and are pretty recession-resilient as well – to a much greater degree than might have been expected, Kasser said.The beauty of a portfolio of privately-held, privately-negotiated, untraded loans is that concerns, volatility and market sentiment don’t really affect the loans, Kasser told Lisa Lee, managing editor of Creditflux. Rather, the only thing that does impact the loans is the fundamental performance of the companies being lent to. “That will take some time to figure out, but it looks like all should be well,” Kasser said.Kasser noted that an element of the underwriting that people miss is the importance of the private equity sponsor. They have three advantages in fixing a problem. These encompass control (they can make any change they want to), time (they don’t have to exit at any point in time), and capital (they have capital to support existing investments). A lot of problems, including things like recessions, tariffs, inflation, supply chain issues, and higher interest rates, are, to some extent, temporary and fixable, Kasser said.Neuberger Berman passes on many financing deals, even those that may look like good opportunities. “You just need to decide which way you want to err. And we have consistently decided we want to err on [the side of] capital preservation, margin of safety, zero mistakes for the investors,” Kasser said.

Private credit is fast growing, and will take market share away from the public leveraged finance markets, Blue Owl’s co-president Craig Packer told host Lisa Lee on the Credit Exchange podcast. The direct lending segment that competes with leveraged loans and high-yield bonds will become 45%, maybe as much as 50%, of the leveraged finance market over a five year period. That’s raising questions about the asset class – is there too much money chasing after financing deals, why are there vast differences in valuation among private credit shops, is it okay that there’s more payment-in-kind loans, how will it perform in an economic downturn. Packer, who co-founded the predecessor firm to Blue Owl’s Credit platform and was instrumental in shaping the modern private credit market, tackles these questions and explains why he is optimistic about the performance of private credit.

Volatility creates opportunity, Michael Zawadzki, global CIO of Blackstone Credit & Insurance, told host Lisa Lee on the Credit Exchange podcast.“Stick with the fundamentals that have been working for us and look to play offense where volatility creates opportunity,” said Zawadzki. In the seven or eight days following the 2 April tariff announcement, Blackstone traded over USD 5 billion of liquid credit.“When we see prices on the screen disconnect from underlying fundamentals, that's a time where you want to lean in,” he advised.“It doesn't mean you need to lean in with and push all of your chips into the centre of the table, but it does mean you can start buying with the expectation that you’ll add more into further weakness.”Private credit’s golden era never really ended. The period in 2023 when base rates were high and spreads were wide, and all deals coming to private was a really attractive market for private credit. Fast forward to today – Zawadzki predicts that they can see a repeat, getting deals that would otherwise have accessed the public market. In addition, private credit will maintain a durable 150bp to 200bp premium to the public markets and expand its reach to around a USD 30 trillion market, of which the bulk will be investment-grade private credit.Blackstone is also having more discussions around the place for European assets in its client portfolios, Zawadzki said.

The expected M&A rebound may take longer to materialise, but it will come, Vivek Bantwal, co-head of global private credit at Goldman Sachs, said on the Credit Exchange podcast. Both public markets and private markets have a place, and in some areas, there’s been a blurring of the lines between the two, Bantwal told Lisa Lee, the managing editor of Creditflux.Given Goldman’s role at the centre of that ecosystem, Bantwal thinks it’s important they are able to show their clients solutions in both markets side-by-side.When underwriting new deals right now, look at how tariffs might impact. But what else are you looking at, Bantwal asks. What’s changed, given the new uncertainty that’s popped up in this world and in investing?The other part of the analysis, though, may not be so much related to tariffs. If you have an economic slowdown or a recession, how is that management team planning to weather the storm? What do you know about their supply chains, what they do with their marketing or their capex plans? Staying close to your management teams and understanding their plans for how to navigate all that is a really important part of the underwriting process, Bantwal emphasises.There’s also opportunities in hybrid – the type of capital that sits in-between debt and equity and is very flexible. Hybrids can be used in a variety of ways, Bantwal notes – especially given the challenges in the private equity community to exit in the current environment.

The Trump administration chose a shock-and-awe approach to begin tariff negotiations, and backpedalling from the more extreme stances is the right decision, said Jonathan Dorfman, co-founder and CIO of alternative credit manager Napier Park Global Capital, on the latest ‘Credit Exchange with Lisa Lee’ podcast. Regardless, it’s clear there will be some tariffs, and credit investors should take that very seriously, Dorfman told Lisa Lee, managing editor at Creditflux, in a podcast taped 9 April.Companies in the non-investment grade space that are exposed to tariff risks are looking at survival or no survival. Defaults will be higher. Companies will find it harder to get financing and face higher cost of capital due to the big movement in the long end of Treasuries, combined with widening credit spreads, said Dorfman.The violence of the market movements will create more uncertainty at the corporate C-suite, as well as among consumers, who have already been psychologically damaged. All that risks slowing down the economy pretty meaningfully, cautioned Dorfman.Credit markets so far have softened, but not materially. That’s because of the Federal Reserve. If these market moves had happened five or ten years ago, the credit market would have completely collapsed. What’s changed is the base rate. There’s very little leverage in credit markets, which means no margin calls. No margin calls means no forced selling. Because most credit buying has been based on gross yield, unlevered buying, the system has held up pretty well, Dorfman said.