Should Investors Worry About Private Credit

UBS maintains a neutral stance on private credit/direct lending, noting that while systemic risk is low, rising defaults in lower-middle-market loans require a selective approach focused on quality.

Key Takeaways

• 1.CIO maintains a Neutral view on direct lending, citing a balanced risk-return outlook in the near term.
• 2.Risks are rising in the lower-middle-market and specific 2021-22 vintages, with defaults reaching 2.7% in Q1 2026.
• 3.Investors are encouraged to bias exposure toward senior, sponsor-backed, upper-middle-market loans in non-cyclical sectors.

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
• Disclaimer

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