Should Investors Worry About Private Credit

UBS CIO remains neutral on private credit, advising selectivity as defaults rise in the lower-middle-market while systemic risks remain low.

Key Takeaways

• 1.Direct lending risks are rising due to AI disruption in software and high defaults in the lower-middle-market, specifically for 2021-22 loan vintages.
• 2.UBS CIO maintains a Neutral view on direct lending, favoring a selective focus on senior, sponsor-backed, upper-middle-market loans.
• 3.The UK's Financial Conduct Authority (FCA) is considering new reporting requirements for private credit managers to increase risk supervision.

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.
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