This post was originally published as part of BondBloxx’s new Precision Play found on LinkedIn
Recent headlines about gated redemptions in certain funds, concerns about valuation transparency, and broader macro uncertainty have unsettled some investors. But the case for private credit in a well-constructed portfolio remains too strong to set aside based on headlines. For those who look past the noise, the current environment presents a compelling entry point.
WHY PRIVATE CREDIT
- Elevated yields remain historically high. Because interest rates have stayed high, private credit loans are generating more income than they have in most of the past decade, and more than investors can typically expect from stocks or public bonds.
- Historical performance advantages, with lower volatility. Due to its coupon income advantage, private credit has historically offered higher returns than all other broad fixed income exposures, with lower volatility across both bonds and stocks (as shown in chart).
- Fundamentals remain broadly sound. Default rates in private credit, while ticking up modestly, remain well below historical stress levels, and senior-secured structures continue to provide meaningful recovery protection. In the Cliffwater Direct Lending Index, a widely followed benchmark tracking the performance of direct lending loans in the US, 2025 realized losses were just 0.64%, below the long-term average of roughly 1.0%. Current data suggests isolated stress rather than systemic deterioration. [1]
- Sponsor support remains strong. Sponsors (private equity firms that back borrowers) continue to support their portfolio companies through amendments, equity injections, and flexible financing, limiting default severity even where borrowers face pressure.
- The headline risk is concentrated, not systemic. Gated redemptions have been isolated to a handful of closed-end funds that are generally working as designed, not a reflection of underlying credit quality across the asset class.
WHY ACT NOW
How to invest in private credit has never mattered more. Not all private credit investments are created equal: manager quality and diversification, underwriting discipline, and structural protections are important, rewarding investors who are discerning about where and how they access the asset class.
Volatility has created an entry point. Recent market weakness has pushed private credit yields higher, giving investors a more attractive entry point than they would have had a year ago. Based on Cliffwater research, in the current rate environment investors may once again earn 9 to 10% gross yields within direct lending. [2]
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Investors should consider the investment objectives, risks, charges and expenses carefully before investing.
There are risks associated with investing, including possible loss of principal. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. Fixed income investments are also subject to credit risk, the risk that the issuer of a bond will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.
Nothing contained in this presentation constitutes investment, legal, tax, accounting, regulatory, or other advice. Information contained here does not constitute an offer to sell or a solicitation of an offer to buy any shares of any securities. The investments and strategies discussed may not be suitable for all investors and are not obligations of BondBloxx.
[1] , [2] Source: Q4 2025 Cliffwater Direct Lending Index (CFLI) Webcast, as of 4/1/26.
Chart source: Bloomberg, Cliffwater and LCD Morningstar, data from 2015-2024. Private credit tends to offer compelling returns due to higher coupons and typically lower volatility, supported by its floating rate structure and less sensitivity to public market fluctuations.
Indexes include: US Private Credit represented by Cliffwater Direct Lending Index; US Aggregate represented by Bloomberg Barclay US Aggregate Bond Index; US Investment Grade represented by Bloomberg US Corporate Bond Index; US Leveraged Loans represented by Morningstar LSTA US Leveraged Loan Index; US High Yield represented by Bloomberg High Yield Corporate Index. An investment cannot be made in an index. Past performance is not a guarantee of future results. The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers. The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg EM country definition, are excluded. The Cliffwater Direct Lending Index seeks to measure the unlevered, gross of fees performance of U.S. middle market corporate loans, as represented by the underlying assets of Business Development Companies (“BDCs”),including both exchange-traded and unlisted BDCs, subject to certain eligibility requirements. The CDLI is an asset-weighted index that is calculated on a quarterly basis using financial statements and other information contained in the U.S. Securities and Exchange Commission(“SEC”) filings of all eligible BDCs. The Morningstar LSTA US Leveraged Loan Index is a market-value weighted index designed to measure the performance of the US leveraged loan market.
Past performance is not a guarantee of future results.
