$1.4T at Risk? Private Credit Cracks Start to Show

Good morning, ! This week we're covering overing rising stress beneath private credit’s $1.4T expansion, a market-wide multiple reset reshaping deal timing and exit strategies, liquidity pressures accelerating the adoption of continuation vehicles, and a softer dollar reopening emerging markets as a PE growth frontier.

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DATA DIVE - MONTHLY REPORT

Private Credit’s Calm Surface Is Starting to Ripple

For years, Private Credit sold itself as the safer cousin of leveraged lending: locked-up capital, bespoke structures, and none of the bank-run drama. Fair enough. But the latest numbers suggest the risk hasn’t disappeared—it just learned better manners.

Assets under management have ballooned from roughly $61 billion in the early 2000s to more than $1.4 trillion by 2024. Meanwhile, US bank lending as a share of GDP has slipped to 43.3%, showing who inherited the middle-market lending throne.

The catch: default rates are drifting higher, and some forecasts see them nearing 8%, up sharply from the long-run 2–2.5% range. Not apocalypse territory—but enough to dent returns and slow new deal activity.

Why it matters for PE sponsors: higher defaults mean tighter underwriting, pricier refinancings, and fewer “EBITDA add-back meets PowerPoint optimism” deals getting done.

Read the full Report HERE

TREND TO WATCH

The Great Multiple Reset

Private equity spent the last three years waiting for 2021 valuations to return. They probably will not. What is changing now is not demand for assets, but seller psychology.

According to the outlook, sponsors who once targeted 12x EBITDA are increasingly accepting closer to 10x, while average holding periods have stretched to 6.3 years and fundraising timelines reached 23 months in 2025. That combination matters. The longer assets stay trapped, the louder LP distribution demands become.

This creates a powerful setup for 2026. Banks and private credit funds have capital ready. Buyers remain active. What has been missing is pricing alignment. As that gap narrows, deal activity can accelerate quickly because years of delayed exits are stacked behind it.

For GPs, the implication is clear: waiting for peak multiples may become the costliest strategy in the market. Early movers who transact at realistic prices may secure liquidity, strengthen fundraising narratives, and redeploy capital before the next wave of competition returns.

In private equity, the next cycle may begin not with euphoria, but with acceptance. (More)

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DILIGENCE CORNER BY 150 DILIGENCE

Using Hedonic Pricing to Decompose Real Estate Value

For investors evaluating residential assets, understanding what actually drives price formation is critical. Hedonic pricing models provide a structured way to decompose property value into the implicit contribution of individual attributes.

At its core, the approach assumes that the observed market price of a property reflects the sum of its characteristics. Rather than treating price as a single outcome, hedonic analysis isolates the marginal value of features such as location, size, layout, and amenities.

In practice, the largest drivers of value are typically location and property size, which capture access to economic activity and usable living space. Secondary adjustments then reflect property type, layout efficiency, and building age or condition. More marginal effects include environmental amenities (views, green space), accessibility to transport links, and other property-specific features.

For buy-side investors, this framework offers two strategic advantages. First, it clarifies which attributes meaningfully drive price dispersion within a market, enabling more accurate underwriting and benchmarking. Second, it highlights mispricing opportunities, where properties may be undervalued relative to their attribute profile.

In diligence, applying hedonic thinking helps shift analysis from headline comparables to attribute-level value drivers, improving both pricing discipline and investment conviction. (More)

LIQUIDITY CORNER

Liquidity Takes the Wheel

Private equity has a liquidity problem, and it’s no longer temporary. It’s structural. Enter Continuation Vehicles (CVs)—now the industry’s preferred escape hatch.

According to recent GP data, 53% cite LP distributions as the primary driver for launching CVs, leapfrogging traditional value creation motives. Translation: cash flow > IRR optics.

Why now? The usual exits are stuck in traffic—muted M&A, shaky IPO windows, and persistent valuation gaps. So GPs are doing something radical: manufacturing their own liquidity.

CVs allow sponsors to partially exit, reset valuations, and retain control—all in one move. What started as optionality is now necessity.

The bigger shift: private equity is becoming more self-reliant, blurring lines with the secondaries market.

Bottom line: In a frozen exit market, CVs aren’t a workaround—they’re the new plumbing. (More)

MACROVIEW

The Dollar’s Softer Era Is Repricing Emerging Markets

The US Dollar is still the center of global finance, but it is no longer behaving like the only game in town. Your chart shows the same pattern across both Trump presidencies: an early rally followed by a steady slide. More notable, even fresh Middle East conflict failed to create a lasting dollar surge.

That matters because a softer Dollar changes the math for Emerging Markets. Countries with dollar debt see liabilities ease in local currency terms. Importers of fuel, food, and industrial inputs get relief through lower inflation pressure. Sovereign spreads can tighten. Local bond markets can deepen.

But this is not a free lunch. The winners will be countries with credible Central Banks, disciplined fiscal policy, and enough reserves to handle volatility. The laggards will attract hot money first and capital flight later.

For Private Equity and M and A investors, this opens a broader hunting ground. Expect stronger pipelines in India, Indonesia, and selective frontier markets where currency stability can finally support real multiple expansion, not just revenue growth. (More)

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