CIO Panel Private Credit vs Everything – Allocation Priorities in 2026

Great. Um well, great to see everyone and we are going to uh dive in. Um I guess first before we get rolling, if everyone could give just a very quick background uh on themselves and the firm.

Sure, happy to. Thanks for having us. Uh Antoine Lort. I'm a partner at Parks Square Capital. I joined the firm about 20 years ago.

We managed just short of 20 billion uh focused on three main strategies. Subornated debt, large cap senior lending and middle market direct lending.

Hi, my name is Walcan Gortes. I'm the founder of Wing Capital Partners. We are focused on credit and structured credit based out of New York. We opened our international office in Abu Dhabi three and a half years ago. This is my fourth time in a row participating in this uh conference and it's a pleasure to see how it's grown.

Good afternoon. Lo Fer, founder, CEO and co-CIO of Shavar Investment Manager, six billion of assets focused exclusively on the continuum of credit and private credit in European markets. uh hope in Abu Debi as well and uh been coming to the region uh and delighted to have uh quite a few significant help in the region.

Hi, my name is Rick Miller. I'm the CIO of Private Credit at TCW. Uh TCW is a $200 billion asset management firm in the states with a global footprint primarily focused on debt both public and private. Uh I run the private credit business uh which covers really three strategies uh premium spread strategy uh a more opportunistic strategy and a partnership uh with PNC Bank. Uh and I'm Richard Grim, head of global credit at Cambridge Associates.

Cambridge has been active in the region for multiple decades. uh we're an investment uh manager and adviser to institutional investors and and uh family offices with about 600 billion of AUAUM. Um so to before we really dive in I was going to frame out I think the markets in general um and then dive into liquid credit and private credit. Um you know at Cambridge we produce a lot of uh interesting data and and my colleagues do this and one of the things that uh I think is noteworthy is if you look at uh not just the US equity markets but developed uh markets in general um going back to the 70s uh on a price to uh cycllically adjusted cash earnings you're at the 100th percentile for the US uh and you're at the 85th percentile for domestic markets in general. So, we're certainly in a risk-on environment on the equity side.

If you look at liquid credit, fixed income, uh across the board, US, Europe, IG, US, Europe, high yield, a lot of ABS markets, you're uh within the 10th percentile of tightest spreads. So, we're we're in a pretty interesting spot in the markets in general. So now if we pivot into uh what we're going to talk about today which is fundamentally subinvestment grade credit uh and private credit. I wanted to start with the fear factor and I think the fear factor is real. We've we've all read about it over the last few months.

Uh uh a lot of the coverage has been misguided. Um but as we just heard on the last panel and we just caught the tail end of it. I think there's real concern amongst regulators and people really trying to get under the hood a little bit. So maybe um if if we dive in and and and Lo and Vulcan, I wanted to start with you two. Um more on the uh CLLO side of things on the leverage loan side of things.

We're at a point in the market really when you look at the 30-year history of the broadly syndicated loan market that a lot of practitioners would say it's the lowest quality within the market that we've seen. Um obviously you both have generated strong returns over a long period of time. How are you navigating that market today?

Yeah, I mean um I would say it's I wouldn't agree that it's lowest quality but I it's definitely stretched. It's definitely on the low side. Uh especially leverage picked up in the broader syndicated market and spreads are extremely tight. As you know if you look at this high yield market about one and a half trillion is high yield bonds one and a half trillion is broadly syndicated loans that much private credit 1/3 split on the broadly syndicated side almost 75 80% goes to CLOS's and there has been tremendous demand to CLO products because the product proved itself over the last 20 years that it performs through the cycles. So CLOS's have tremendous appetite to broadly syndicated loans which is continuing to tighten the market over 70% is priced above par.

Last time I saw that was 2019 December almost priced to perfection. It of course you know the I do think you have to be especially in this kind of environment extremely careful with your credit underwriting manager performance is very disperse. uh but overall uh overall broadly syndicated market I do not see systemic risks there. I think it will perform. One issue that people should be aware of is liability management uh and activities that borrowers do uh which will negatively affect the recoveries in the broadly syndicated market.

When I look at private credit market which we'll talk about I think I have other concerns

but maybe I pass to look.

Yeah. Thank you. So as you said Richard, I think the the divide between the public tradable markets in credit and the let's say private side of the market is is actually interesting. Uh at the end of the day, I mean we all whether you invest in private credit or credit you're exposed to the same type of you know deterioration of credit qualities and delinquencies and so on. Um and what I would say is uh clearly there's been significant pickup on different part of the market.

Um and the fear factor you could say okay well we are in the high percentage of you know the default cycle on depending on the asset class obviously if you talk about corporates or if you talk about consumer or if you talk about mortgages we'll talk maybe later about the different the difference between those things but what what I feel is that what most people forget is that credit is one part of the capital structure which is senior to equity you have equity market trading at near all-time high in terms of PS and so on and it's great to ask the question about credit but let's not forget that credit is senior to equity that's the first thing that people forget the second thing is that credit is all about fundamentals we can talk about analytics we can talk about stress test and so on I mean at the end of the day we need to understand each and every layer of the fundamentals that underline the credit portfolios once you've said that there are still very attractive part in capital structures of of different structural credit product whether it's CLOS's ABS and so on and it's all about risk adjusted return at the end of the day you know you can have a TR inside the capital structure at one given point in time that looks very attractive and six months later the same tunch is going to be much less attractive because spread compressed risk picked up or whatever. So, it's extremely important to not be too generic and to not forget that credit is above equities in the capital structure.

Yeah. Know, I think that's a fair point, Luke, and that's also why I tried to frame out the conversation. I think we can all um take a little bit more of a negative lens as to where spreads are today and and some of these sorts of trends, but that is you're you're reflecting on the asset class itself. So Visav two years ago obviously you're not getting as rewarded but to your point uh still interesting riskreward. So then pivoting more into the private credit side of things, uh, and I'll I'll turn to, uh, to Rick and Antoine.

Um, you know, some of the obvious things that people are focused on, which I think truly are from a beta perspective, Canaries in the coal mine, you know, pick as a percentage of total interest income. Um, you know, the fact that, uh, you know, Covenant Light is the majority of the BSL market. it's an increasing part of the uh direct lending market. So some of those things that people are concerned about again how are you guys navigating that uh today and and maybe address that. Start with you Antoine.

So we are starting to see the lines get a bit more blurred between uh you know the broadly syndicated loan markets and the private credit markets. Uh that's especially true in the US. In Europe, we're seeing um I think more of a more of a separation between both. Uh we think Europe actually has sort of structural benefits, structural advant advantages which uh work quite well with private credit. Um to start with the supply demand and balance that we're talking about quite generally doesn't quite apply in the same way in Europe.

There's uh less exposure to BDC capital have been raised in Europe. Um issuance in Europe has actually increased relative to last year. uh structurally speaking as well in Europe, you're going to typically have um more loan style documentation. So documentation which isn't directly uh picked up, you know, from a from a high yield type culture. Um you have things like monthly reporting which are quite rare in a US context.

And and a third thing which is um perhaps a bit more intangible is European if if you're investing in a European leader typically uh the modes and the barriers to entry that you will have as a company will be will be greater than those of an American business. Uh when you uh a growing American company can access the entire domestic uh US market whereas in in Europe you can be very good in France but then if you want to be good in in in in Germany you need to start over. And you know all this red tape we talk about Europe from a credit standpoint actually creates this this inertia which uh we view as a very positive from a credit standpoint.

And I think to your point it's structural right. So that's not changing. Uh people can talk about uh uniform insolveny regimes and in reality that you're not you're not getting there. So it's a pretty different market to the US. I guess Rick I'll I'll then pivot to you.

focused in the US. Um, but obviously the way you've approached the uh the strategy uh you're not on the flow end of the uh you know upper end of the spectrum uh within direct lending. So maybe touch on that a little bit in terms of how you're navigating today's market. Uh as you alluded to, you have multiple strategies.

Well, I I think it's it's pretty clear to all of us now that the halo around private credit is probably gone. uh the bloom is off the rose. Uh there's more negative press. We've heard words like canary in the coal mine, cockroaches, uh and other other terms that describe the the state of private credit. I think what you're really seeing, Richard, is the maybe the end of the beta trade in the asset class in the states where really post GFC, I'm not sure you could have picked a more benign investment climate to invest in.

Low interest rates, no recessions, no defaults, rising enterprise value multiple multiples, not a bad climate in which to lend, invest equity, real estate. I mean, all asset classes did well. I think a lot of us probably look smarter than we really are over that time period. Over the last three, four, five years, that's over, right? Rates rates are not high.

They're normal. Um, volatility in the economy is normal. The business cycle, the return of a business cycle is normal. And I think you're going to see that manager selection is going to be a a big uh point of dispersion or differentiation amongst returns for investors where it really hadn't been. And it pains me to say this, but I'm not sure it mattered so much in the post GFC period and and now it will.

What worked over the last 14 or 15 years isn't necessarily going to be the same recipe for success. You want to have a a manager that's been around for a little bit uh more than maybe just post GFC and has seen a recession or a cycle or a different capital market environment. You're going to want to have access to differentiated origination. And maybe most importantly, you know, a manager that can manage underperforming investments, mistakes. I think you're going to see more of that.

The opportunity for that is is going to be there. That that presents opportunities as an investor. But I think the the the big message here isn't private credit's over. It's not going away. It's been around forever.

It's going to be around forever. Um and who provides it changed, but as an asset class, um uh what's changed is the the beta part of this trade is over and I think it's now manager selection above all else.

Yeah. No, I think Loick, did you want to add? Yeah, I just wanted to add a word about uh you know obviously generally speaking we define private credit as typically corporate private credit right and there's a there's a very vast asset class which is specialty finance and asset based lending and um and in that space I think the contrary to the corporate space where there's you know a supply a lot of supply now and the demand is still there but obviously um on that space you have a significant ificant uh way for growing because you know let's not forget that private credit was started as a bank replacement strategy right because banks had regulatory capital issues and basically there were things they were less able to do and so basically it obviously started with the biggest bulk of the bank which is like single names and corporates but you know when you look at consumer when you look at uh residential mortgages you look at uh all sort of you know auto loans and granular pool of assets I mean that asset class in private credit offers definitely great value today uh for two reason. You have granular pools with predictability of cash flow which actually you find in any securitized product on the on on the liquid side and also because that's the only part of private credit where you can truly observe the the the premium of the illquidity. you know, you're giving you're you're basically investing in an illquid asset class, but you can monetize that in the public market through securitization and that's an observable premium and that, you know, we can see over time and at the moment this is actually standing at a at a very good a very good level.

So, from a relative value standpoint.

Yeah. No, I think Lo, you're you're touching on a an important point. Um, you know, really at its core, private credit is an amalgamation of strategies that have been around for decades. Uh, even direct lending, uh, you know, goes back to the '9s. Uh, it was just different platforms.

I think the issue and the concern people have is just how fast and how quickly things have grown. And I think whenever that happens, it's inevitable that there will be groups that participate in that market that aren't following best practices. And so I think maybe if we pivot there a little bit and and just talk about, you know, addressing the fear and some of the concerns and some of it, you know, is is legit if we're in a late cycle uh part of the market just in terms of return compression potential and whatnot. Um but really the uh the opportunity to differentiate yourselves within the private credit market. You know, Antoine, you touched on already, you know, your lens from Europe and and what that means, and maybe if you want to elaborate a little bit more.

I

I think we've been in such a benign environment uh from a credit standpoint over the last decade or so that it feels like you've got managers out there who seem to have forgotten some of the fundamentals. And if you take um you know, incentives, Charlie Mer used to always say, you know, show me the incentives and I'll tell you the outcome. And the incentives of many of these managers is to deploy capital. it's not to generate performance. And if you combine an incentive to deploy into the market, um the the end result is that you'll be investing in cyclical sectors, cyclical businesses, overle overlevered capital structures, uh weak documentation.

I mean, all the things that you should be quite wary of as a credit investor. On the other hand, if you stick to the fundamentals, which Lu alluded to, which is cash flow-based lending, really understanding the businesses, stable and predictable companies with uh strong barriers to entry, um you should be able to navigate very well through a lot of this noise. Um and I think it's it comes back to a point that that Rick was making, which is the dispersion in managers. You got managers that will continue to consistently deliver highquality returns in the credit space by not trying to reinvent the wheel and just stay very focused on what they've been doing for a very long period of time.

Yeah. Um I think I agree with Lor and Antoan as well. The at the end of the day we shouldn't forget it's one economy, one real true economy. How corporations finance themselves with public credit or private credit is a secondary matter. The economy has to perform.

So as credit analysts we need to keep eye keep our eyes on the fundamentals and our underwriting standards. Uh for instance I just saw that uh that first brand default which spooked everybody. Mhm.

I think there's about 120 active broadly syndicated CLO managers. 102 of them also had exposure to first brands. We had zero toricolor zero because we take it very seriously the fundamental underwriting when we look at the credit. So that's like keeping your eyes on the ball. Uh liability side can be adjusted and changes over time but the fundamentals of the company and uh the economy is important about private credit.

I want to say a few things. Of course, it's grown very fast and lack of transparency in the pricing of the loans recently this pick loans the canary in the coal mine story etc. uh started worrying investors. It created the fear factor and uh I think it's important because for instance first brand was not a private credit loan right

but it defaulted and everybody on the private credit space is oh what's going on right I think that's because like when you look at the broader syndicated market these are bigger loans broader syndication and they trade every day so you can see the loan at par one month later at 98 3 months later at 80 it's not going well whereas in the private credit market that's not available that data is not available to people. So it's going par power par power par power par power par power par power par power par power par power par power par power par power par power par power par power par power par and we have seen cases in two weeks it went to 10 cents 20 cents so I think that creates the scare uh it's you know we can discuss if it's justified or not but I can understand the investor bases why they are because if you are getting news even it's bad news it's news if you are not getting any news any data that creates this fear factor

you know I I think that um when you look at the trends in the marketplace the the the the advantages of this the senior secured place in the capital structure as an investment instrument is pretty vast. You're top of the capital structure, your first lean, you have floating rate debt. Those are all very unique and built-in hedges advantages. It's why it's a safe harbor asset class or supposed to be a safe harbor asset class. Uh and over the years, we've watched a lot of those protections get diluted, right?

We've seen the rise in debt to Ebida ratios. We've seen uh the the the the movement to a more heavily adjusted, poorly vetted IBIDA definition. Uh we've seen uh the movement to covenant light that's more of a BSL attribute coming down in the private credit. And that's created this landscape of which you're now seeing some of the this behavior get punished, right? Shortcuts, uh lack of protections and loan docks and that creates fear.

uh I think you have to return to what the value proposition is of the asset class as an investor as an allocator of capital and why why you're attracted to it uh and why that as I said earlier manager selection is going to be so important but you you've got uh the ability to step in and and take advantage of the opportunities going to come out of this environment right opportunistic is going to create an envir there's going to be an this environment is going to create opportunity unities for an opportunistic strategy, stress, distressed, providing liquidity uh to those in need. That's historically been a great avenue to generate great returns. And and maybe finally to end on a more positive note, uh when you when you're an investor in fixed, you know, in the in the top of the capital structure here, you're trying to isolate your risks. You don't want to take uh you know, enterprise value risk that's out of your control. uh you'd like not to take, you know, documentation risk or dilution of your protections risk.

So, you're removing those. You don't want to be surprised that base rates go up like we saw back in 22 and have your balance sheet no longer functional. Uh I think you're coming upon a period where the new vintage uh strategies from private credit have an opportunity to do very well. And I say that because you're no longer going to be surprised by interest base rates going up. They're up.

uh they're not high, they're normal. Uh they're off the zero bound. That that was the anomaly. I think you can expect that you're going to be investing in a climate where enterprise value multiples are no longer climbing, you know, to the moon or climbing to the sky. They're moderating.

So, you're eliminating two of these risks and you're kind of isolating to the one risk you need to take, which is the economy, the underlying economy. And and and you're supposed to live with that risk in this asset class because of all those built-in protections you have as a lender. Yeah, and I think um what you're touching on again is you know this isn't a monolithic market. Even within direct lending as we talked about Antoine, geographically there's differences, pockets of value,

borrower size, there's differences, business model, there's differences, right? Um you know, if you're on the flow end of the market, you're getting a grid, it's going out to, you know, how many competitors that feels more like the syndicated loan market. uh but if you're not playing in that space, you're getting monthly financials, you're getting liquidity covenants, you're getting all these things. So, I think that sometimes gets lost in the mix uh here as well. I know we're we're uh starting to run a little bit short on time.

Rick, you started to go there, so I wanted to pivot off of most of this discussion has been around corporate cash flow lending. What are the opportunities that are coming out of this environment? Coming out of the 2019 2021 vintage company that financed themselves with a lot of leverage with a certain growth profile that may or may not have actually occurred but uh didn't hedge their interest rate risk. So any excess cash flow was servicing debt. What are you seeing today?

Antoine Park Square from its origins was a mezz uh lender.

So we we we our DNA is is one of a junior capital investor. Uh the opportunities we're seeing I would say are coming from potentially two two areas. One, you know, good companies, bad capital structures. A lot of what we were describing is is exactly that. And as um you know as things unravel, there's potentially going to be an opportunity to to go back into these companies and make attractive investments.

Another point we didn't really touch upon is this um decorrelation between uh liquid liquid pools of capital and illquid assets. that as well. Uh if you combine with you know exposure to a lot of retail investors could also precipitate an environment where there could be quite a lot of value from an outside in perspective uh looking to acquire a lot of those loans uh from for sellers or people who are trying to grapple to whatever liquidity is left.

Yeah. And I think you're touching on to us that's one of the real big questions today around the market. It's a fundamental

that's the structural important question for investors I think

um conscious of time yeah go

I'm seeing that you know large portions of EIT is getting used to pay interest these days right the interest stayed a little higher for a while so I do expect the credit cycle to turn in the next two years that will reflect a volatile BSL market and with this fear factor involved that can become a really bumpy ride on the private credit market I mean these Different credit cohorts are present in these markets. More triple C and B minuses in the private credit. A little higher quality in BSL. I would expect lower recovery rates in the BSL markets. Maybe more defaults in the private credit market.

Opportunities I see predominantly in a wellperforming structured credit market. You know, CLBs and tripleBs over 25 years, they performed extremely well. uh what I see from my personal expertise is I think I might end up restructuring some private credit CLOS in two years and in those restructurings there's tremendous value like

yeah I think uh you know at the end of the day uh we we like those environments we thrive in those environments and uh you know to deliver high double digit return over very long period of time you actually need to benefit from those environment and uh so one thing I think we haven't touched I mean obviously the big opportunity is the relative value understanding the relative value and going deep in the relative value not forgetting the fundamentals and what's going to be key is that you're talking about manager selection obviously track record is one wide understanding of the market environment is second but third is data and was talking about theity of Europe and I think to some extent this is barriers those are barriers barriers to entry and you want to be in areas where there are barriers to entry. You want to be in area where you're gonna exploit value because it's very more complicated to get the data to understand the data and so as investor we invest across obviously QIP securities ABS CLOS's secondary primary we invest in specialty finance loans and we invest in asset back loans we also very active with banks balance sheet on the SRT side and so on all this is giving us a sum of data uh that someone that is just in one of those bucket doesn't uh doesn't have and I think that's really the hedge and we really think that that's what you want from a manager today.

Yeah. You know I I think the the the positive or the thing to look for the opportunity set is you need a manager that can embrace not not manage through but embrace volatility. Uh it's coming both in the markets as well as in the economy. you're seeing it expose some behaviors amongst managers that maybe wasn't recognized or wasn't punished uh because of the environment we were in now get punished simply because the environment changed. Uh so I think you want those that experience you want that capability.

Uh and you want that that investment discipline that they can move around and whether it's providing liquidity in that opportunistic uh avenue or it's providing fresh capital into healthy operating businesses. Uh but you want a consistent approach from a manager that you can look back at their body of work and say they've done it before, they're doing it now, they'll do it in the future because what we can't control is what happens in the future. And that's in fact where all this volatility awaits us,

right?

And so we want to be able to manage it and embrace it, not fear it.

Yeah. Yeah. Co was the time where my company made most of money. So when things get volatile, I think expert starts making better.

Yeah. Yeah, and I think that's the takeaway we have to uh wrap there. But I think, you know, it's a broad asset class. Uh dispersion isn't a negative. It can be a positive.

It can lead to other opportunities. And um certainly from my seat and I think it's clear from the panel seat. Um you know, there's uh strength in the asset class and and even if we go through a cycle, I think opportunity. Um so again, we'll leave it there and and thank you for uh everyone for attending.

Thank you. Thank you. Thank you.