Key insights
- The post discusses the sustainability of private credit's growth. While banks haven't fully returned to the middle market, increased competition, tighter spreads, and concerns about underwriting quality raise questions about long-term returns. The shift from a bank dislocation trade to a more crowded space suggests potential vulnerability in a downturn, posing a slightly bearish outlook for related public market proxies like BDCs.
I’m a big believer in private credit, but trying to sanity check my bias before allocating more to public market proxy exposure like BDCs and listed private credit platforms.
Feels like the space has shifted from a real bank dislocation trade into something more crowded, with tighter spreads, more PIK usage, and rising scrutiny around underwriting quality.
At the same time, banks still have not fully retaken the middle market, so the structural case remains and capital keeps flowing in.
Curious how people see the long term here. Is this a durable shift in how credit is intermediated, or a cycle where returns get competed away and weaker vintages get exposed in a downturn.