INSIGHTS

On March 02, 2026

AAM Viewpoints — Navigating Private Credit with Discipline in a Divided Market

Authored by: Chris Wright, President, Crescent Capital and Chris Wang, Managing Director, Crescent Capital

As we head deeper into 2026, the U.S. private credit market — particularly the core and lower middle market direct lending segments — continues to demonstrate resilience and relevance. In a macro environment still defined by elevated interest rates, geopolitical uncertainty and structural shifts in capital formation, private credit could remain an attractive source of risk-adjusted returns. However, success will increasingly hinge on discernment, selectivity and a disciplined approach to underwriting and manager selection, in our view.

Resilience in Core & Lower Middle Market Direct Lending

We believe the current environment plays squarely to the strengths of the private credit asset class. With base rates still elevated relative to historical standards and volatility across public markets persisting, we believe private credit can offer investors an attractive yield premium with reduced mark-to-market risk. Core and lower middle-market strategies in particular can potentially continue to deliver:

• Elevated all-in yields, supported by floating-rate structures and modest leverage.
• Robust creditor protections and tighter documentation.
• Strong information rights, enabling more active monitoring and engagement.
• Premiums to broadly syndicated loans and public credit, without sacrificing structure or transparency.

  These structural advantages are reinforced by a market we see as continuing to favor scaled, relationship-driven lenders capable of delivering certainty of execution to financial sponsors.

Macro and geopolitical headwinds — known unknowns

While fundamentals remain strong, investors must navigate an increasingly complex set of macro and geopolitical risks:

• Policy shifts in the era of President Trump, including trade tariffs, tax reform and deregulation impacting underwriting across sectors.
• Geopolitical tensions, including in Eastern Europe and the Middle East, are adding risk to global supply chains and business sentiment.
• The regulatory environment continues to evolve, introducing new variables into underwriting and risk assessment.

  Amid this uncertainty, we believe credit managers must invest with intention and underwrite to downside scenarios, focusing on cash generative businesses with pricing power and strong sponsors capable of supporting their portfolio companies through market dislocations.

Rising dispersion; growing importance in manager selection

Perhaps the most important theme for 2026 is the growing dispersion across manager performance. As beta-driven strategies come under pressure, performance is increasingly being driven by manager-specific factors: sourcing depth, underwriting discipline and portfolio construction rigor.

Recent dislocations — ranging from some highly publicized, idiosyncratic defaults to increasing non-accruals and payment-in-kind (PIK) interest income in private credit portfolios — have exposed weaknesses in risk controls, underwriting discipline, loose documentation and non-sponsored lending. The era of passive credit beta is likely over: we believe 2026 is a stock picker’s market. In this environment, limited partners are placing greater emphasis on:

• Cycle-tested track records, with proof of performance across vintages.
• Scalable platforms, with deep origination networks and robust underwriting processes.
• Alignment and transparency, particularly around conflicts, governance and reporting.

Manager selection is no longer a check-the-box exercise — it is a key driver of risk-adjusted return in today’s maturing private credit landscape.

CRN: 2026-0206-13201 R

The above excerpts reflect Crescent Capital’s views as of January 26, 2026, and are reproduced/abridged by AAM with permission.

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This document expresses the views of the author as of the date indicated and such views are subject to change without notice. Neither the author nor Crescent Capital Group LP (“Crescent”) has any duty or obligation to update the information contained herein. Further, Crescent makes no representation, and it should not be assumed, that past investment performance is an indication of future results.

Crescent makes this commentary available for informational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Nor is the information intended to be nor should it be construed to be investment advice. Certain information contained herein concerning economic trends and performance may be based on or derived from information provided by independent third-party sources. The author and Crescent believe that the sources from which such information has been obtained are reliable; however, neither can guarantee the accuracy of such information nor have independently verified the accuracy or completeness of such information or the assumptions on which such information is based.

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.