Should Investors Worry About Private Credit

UBS views private credit as facing increased volatility and liquidity constraints, recommending a shift toward senior, non-cyclical, sponsor-backed loans.

Key Takeaways

• 1.Private credit faces risks from AI-driven disruption, higher defaults in lower-middle-market borrowers, and increased liquidity restrictions in some funds.
• 2.UBS maintains a neutral view on direct lending, favoring a selective approach focused on senior, sponsor-backed, upper-middle-market loans.

Table of Contents

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