By Jamie Tadelis, Chief Product & Investor Officer

Private credit is entering a more demanding phase. For much of the past decade, the asset class benefited from a highly supportive macro backdrop. Rising base rates, coupled with floating-rate structures, provided a largely mechanical uplift to income. Returns were often driven as much by macro conditions as by credit selection. That dynamic is now shifting.

Recent geopolitical developments, notably the escalation of conflict involving Iran, have complicated the outlook for inflation and monetary policy. Energy-driven price pressures have reintroduced volatility, forcing central banks into a more cautious, data-dependent stance. Interest rates are no longer expected to follow a single trajectory, with markets pricing a wider range of outcomes. For private credit investors, this marks a transition from broad tailwinds to a regime defined by dispersion, selectivity, and structure. In that environment, geography matters more.

The US market: scale, maturity, and emerging constraints

The US remains the largest and most developed private credit market, fueled by bank retrenchment and private equity expansion. This has created a deep direct lending ecosystem. But success has brought maturity and constraints.

Global private debt AUM reached about $2.5 trillion by the end of 2025, mostly in North America (PitchBook). Fundraising remains resilient, but scale has introduced pressures: spread compression, competitive deal dynamics, weaker covenants in some segments, and rising leverage. Sector exposure is concentrated in technology, software, and AI-adjacent businesses. Rapid advances in generative AI challenge assumptions underpinning these models, including pricing power, customer retention, and long-term growth. Seat-based SaaS models are increasingly vulnerable to disruption, risking margin compression and faster obsolescence.

Public markets have already reflected this shift through volatility and multiple compression. Private markets are slower to adjust, but private credit implications are clear: loans underwritten in a different valuation environment may face elevated refinancing and recovery risk, particularly for asset-light borrowers reliant on enterprise value for downside protection. The US remains indispensable, but outcomes will be more idiosyncratic, with greater dispersion driven by sector exposure and underwriting discipline.

Liquidity is being repriced: lessons from BDCs and interval funds

Liquidity structures are under scrutiny. Interval funds and business development companies (BDCs), which offer periodic liquidity, are showing strain. Elevated redemption requests, gating mechanisms, and persistent NAV discounts highlight a shift in investor perception.

This is not systemic stress but a repricing of liquidity risk. Private credit is increasingly understood as a long-duration, illiquid asset class, with conditional liquidity. Concerns are rising around underlying portfolio exposures, especially in software-heavy strategies facing AI-driven disruption. In the US wealth channel, where retail capital drives interval funds and BDCs, this has translated into higher redemption activity and sensitivity to performance dispersion.

The implications for investors are clear. There is a greater emphasis on cash yield rather than mark-to-model returns, alongside increased attention to duration, amortization, and the visibility of exit paths. Portfolio construction and the liquidity of individual assets are under heightened scrutiny. These pressures are particularly pronounced in US direct lending, where sponsor-backed, covenant-light, and asset-light structures dominate.

Asia-Pacific: underpenetrated and increasingly relevant

Against this backdrop, Asia-Pacific offers a distinct opportunity. Despite representing roughly 40% of global GDP and over 60% of growth, the region accounted for just 3.2% of global private credit capital raised in 2025 (PitchBook). Momentum is building: AUM is projected to rise from $59 billion in 2024 to $92 billion by 2027 (AIMA). More important than headline numbers is the structural imbalance between capital supply and demand.

Private credit in Asia-Pacific operates differently. Banking systems remain conservative, lending is concentrated among large corporates, and mid-market and asset-heavy sectors are underserved. This creates a persistent funding gap. Transactions are bespoke and directly originated, allowing lenders stronger structural protections. Around 90% of deals are non-sponsor, with more conservative capital structures, stronger covenants, lower leverage, and higher cash-pay income. Sector exposure is also distinct: more asset-backed and cashflow-driven sectors, such as real estate, infrastructure, logistics, and energy, rather than asset-light software businesses.

This distinction matters. In a world where AI disrupts traditional software models, lending anchored in tangible collateral and contractual cash flows offers a fundamentally different risk profile, less exposed to valuation swings and more resilient to market sentiment shifts. Many investments are shorter duration or self-liquidating, with clearer paths to repayment. These features are especially valuable as liquidity is reassessed and macro uncertainty remains high.

Structure over beta: from tactical to strategic allocation

The current environment underscores the importance of prioritizing structure over beta. While higher rates support income, they heighten downside risks. Strategies dependent on refinancing conditions or multiple expansion are increasingly vulnerable. By contrast, investments with strong collateral, predictable contractual cash flows, and shorter durations with early capital return are better equipped to withstand a wide range of macro outcomes.

These attributes are more consistently found in less crowded, structurally inefficient markets, particularly across Asia-Pacific. Exposure to the region is evolving from a tactical or opportunistic position to a more strategic portfolio role. The focus is on diversification, access to less competitive deal flow, and downside protection—not taking on additional risk, but finding markets where risk is better priced and rewarded.

Conclusion

Private credit is entering a period of differentiation, not decline. The next phase will be defined by greater dispersion of returns, increased focus on liquidity and structural protections, and a return to fundamental underwriting. Capital will migrate toward markets where competition is lower, structures stronger, and return drivers less reliant on optimistic growth assumptions. Asia-Pacific meets these criteria. For investors positioning for the next cycle, it is no longer a peripheral allocation, it is central to the private credit opportunity set.