Should Investors Worry About Private Credit

UBS maintains a neutral stance on private credit, highlighting that while systemic risk is limited, investors should focus on high-quality, upper-middle-market senior loans to navigate rising defaults in smaller segments.

Key Takeaways

• 1.UBS CIO maintains a Neutral view on direct lending, citing a balanced risk-return outlook with paramount need for selectivity.
• 2.Default risks are notably higher in the lower-middle-market and among loans originated during the 2021-22 period.
• 3.Broadly syndicated loan markets have become more competitive, trading up to 200bps cheaper than private direct lending for new financing.

Table of Contents

• Key message
• 01 Private credit investors have been worried about several recent developments.
• 02 Late-cycle dynamics and an increasingly split market support a selective approach.
• 03 Diversifying across alternative assets makes sense amid the current uncertainty.
• New this week
• One liner
• Did you know?
• Investment view
• Appendix
• Risk information

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