The APB Private Credit Forum: 2026 Reality Check

The APB Private Credit Forum: 2026 Reality Check assembled an influential panel of senior decision-makers and thought-leaders from the alternatives sector for a candid, forward-looking roundtable discussion. Co-hosted with PGIM, this was a free-flowing debate focused on the evolving role of private credit in portfolio construction during a period of stress for the asset class in the eyes of Asia-based private wealth investors.

Key takeaways from “Reality Check” included: the flight to quality, scale and cycle-tested experience in alternatives manager selection for private banks is both real and already underway; negative investor sentiment about private credit is abating but will only ultimately be addressed through systematic client education; and the long-term fundamentals and performance credentials of the direct lending asset class remain strong and defendable, but they need to be better communicated.

As Dianna Carr-Coletta, Managing Director and Partner within PGIM’s Alternatives Direct Lending Group, said: “When I talk to professionals in our industry who truly understand the private credit and direct lending asset classes – and who know the value and utility they bring to the portfolios of private wealth investors – it quickly becomes clear that few are overly worried. What understandably does concern wealth clients is negative media headlines – and the knock-on effect of the related misconceptions they spread.”

Private credit has certainly been recently rocked as an asset class in the eyes of wealth investors. Adverse coverage of what turned out to be the episodic bankruptcies of two US automotive companies in the third quarter of 2025 and, later, a UK bridging loan company in February 2026, quickly spawned a combination of hostile media coverage and polemic reactions from certain parts of the industry commentariat.

These, in turn, were exacerbated by reports of AI’s disruptive effects on software companies, which put further pressure on private credit funds perceived as being overexposed to the software sector.

While “Reality Check” panellists questioned the accuracy and validity of much in the media coverage, they readily acknowledged its impact on clients and their immediate desires to redeem investments. They were quick to accept the resultant challenge of changing perceptions and re-establishing faith in the asset class.

There was a shared conviction, for example, that general partners and asset management companies must recognise the need to work even more closely with their private bank clients in a collaborative approach to problem-solving. The gatekeepers stressed that greater transparency would be the key to future success in this regard, keeping all parties as informed as possible to stay ahead of, and thus repel, any further bouts of media-induced panic.

Gatekeepers also stressed, however, that private wealth clients who were prepared or persuaded to look beyond the headlines and into fundamentals have been reassured by the historically low loss rates enjoyed across private credit strategies. 

In this regard, Stephen Pak, Managing Director, Head of Alternative Specialists – Asia, at Citi Wealth said it was important for private banks, “to revisit with clients their understanding of the asset class and how it fits within their broader portfolio. Where needed, we continue to reinforce key characteristics and provide additional clarity. And, in the case of direct lending, you combat fear-mongering panic with plain and simple facts.”

Another key conclusion from “Reality Check” was that evergreen vehicles have effectively fulfilled their raison d’etre in helping to protect long-term investor interests. Gatekeepers agreed that, while private credit as an asset class will continue to reward best investors who adopt a buy-and-hold approach to their direct lending portfolios, those same investors will now be more reassured by the liquidity sleeves incorporated within evergreen structures. 

For a closer look at the perspectives shared around the table, continue to Discussion Highlights.

The APB Private Credit Forum: 2026 Reality Check

The following is an edited and abridged version of the discussion.

Participants:

• Dianna Carr-Coletta, Managing Director and Partner, PGIM’s Alternatives Direct Lending Group
• Jessica Jones, Managing Director and Head of Asia, Global Wealth of PGIM
• John Cheng, Managing Director, Head of Managed Solutions, LGT Bank (Hong Kong)
• William Fong, Head of Alternatives Specialists Asia & Middle East, Julius Baer
• Stephen Pak, Managing Director, Head of Alternative Specialists – Asia, Citi Wealth
• Connie Sin, Head of Funds & Alternatives, International Wealth Management, Nomura

 

APB: Let’s get our cards on the table. For the private bankers in the room, what are your most immediate and pressing concerns about the private credit market? Where do you see the most significant stresses? 

Fong, Julius Baer: Over the past ten months or so, the main pressures on private credit didn’t stem from structural issues in the asset class. Instead, they were mainly driven by investors’ reaction to media headlines. At that time, many investors didn’t examine the underlying fundamentals but rather acted on negative news flows and chose, or tried, to redeem.

Much of the pressure has been centred on evergreen redemptions related to non-traded business development companies (BDCs), and these are, in fact, a small proportion, say under 20%, of the overall private credit market. It is worth noting that this is already well understood by institutional investors who have invested in private credit, and they’ve largely stayed fully allocated to the asset class throughout. We’re now seeing private wealth investors aligning with this trend. 

 

APB: So, you would say wealth investor concerns have peaked?

Fong, Julius Baer: I would say so. At the same time, the media is more focused on inflation and artificial intelligence than private credit. 

Carr-Coletta, PGIM: That’s certainly encouraging to hear.

Fong, Julius Baer: Indeed. Now we’re beginning to see clients going behind the headlines, and sentiment has moved somewhat over the past month or so.

 

APB: In what manner have clients got behind the headlines? 

Fong, Julius Baer: We see perspectives shift when clients look beyond headlines and into the fundamentals and fully explore the structures of senior-secured private credit investments. They then appreciate that they’re very unlikely to incur losses, since there really is not that much stress in private credit portfolios right now, especially among the better managers. 

Perhaps belatedly, we’ve seen more education from the industry as a whole and, as a result, clients see the value of being patient and staying allocated.

Pak, Citi: Recent headlines have added to short-term uncertainty. I also think we need to be more precise in what we’re addressing. Private credit is a very broad asset class with direct lending, asset-backed lending, and structured lending and finance strategies, among others, sitting within it. While it’s been in direct lending strategies that the stresses have been most apparent, fundamentals have remained solid. Default rates remain low, and payment-in-kind (PIK) ratios have come down, for instance, and we believe that the industry is largely healthy. 

And while the redemption queue issues that affected many private credit providers in the first quarter of 2026 initially led to heightened investor concern and increased market attention, over time, there has been a greater understanding that the affected evergreen vehicles were actually doing the job they were designed to do: protect long-term investor interests.

 

APB: So, do you agree with Bill that investor concerns have peaked? 

Pak, Citi: I think it might still take some time – and perhaps another round or two of redemptions – for investors to balance the solid fundamentals of direct lending with the impact of the gating issues before the redemption queues end altogether. 

Sin, Nomura: We might be the exception that proves the rule. Because we have not seen a lot of redemption pressure from our private credit investors at Nomura, I agree that the software-related headlines – based on the assumption that fast-developing AI will erode software companies’ profits and margins – scared investors in general and fuelled some knee-jerk redemptions. But I would say that’s not a problem solely for the private credit asset class. 

Most frustrating for me has been the mismatch between private credit market realities – characterised by solid fundamentals, reducing default rates and continuing strong premiums to public fixed income markets in terms of returns – and both the noise created by the media and the increased regulatory attention. Our clients, meanwhile, by and large, have remained untroubled, with many looking for opportunistic ways to profit by adding different private credit strategies.

 

APB: How do you separate signal from noise when ill-informed elements of the media spread panic to investors?

Pak, Citi: The right response to fast-spreading negative sentiment is education. It’s to address head-on with clients why they invested in the asset class in the first place – that is, they were seeking differentiated returns with a high degree of income. Second, it’s to revisit with clients their understanding of the asset class and how it fits within their broader portfolio. Where needed, we continue to reinforce key characteristics and provide additional clarity. And, in the case of direct lending, you combat fear-mongering panic with plain and simple facts. 

Sin, Nomura: Stephen’s right – client education is a key part of our job, both in the entire spectrum of private credit as well as other alternatives strategies. I’d also like to see GPs and asset managers working even more closely and collaboratively with private banks to help us stay ahead of media panic. Transparency is the key. So let us know in advance of particular issues that are going to come to the fore, so we can prepare and strategise on communications rather than just being reactive.

Carr-Coletta, PGIM: There are widely held misconceptions. If you ask private wealth investors today if they’re worried about their private equity portfolios, they will, by and large, shrug and say no. So why have those same investors been worried about their private credit holdings? It’s irrational, particularly as it’s clearly the private credit investors who are, of course, going to get paid back ahead of private equity investors if things turn sour.

My conclusion? We need to do a better job of educating everyone involved in the wealth investor ecosystems about the actual risks and real rewards inherent in private credit.

 

APB: Simply put, are there systemic risks in private credit? 

Carr-Coletta, PGIM: The answer is a resounding no. There are selective strains, but there’s no systemic risk.

 

APB: So, how should private banks solve these media-driven feedback loop issues with clients about direct lending?

Carr-Coletta, PGIM: I think some perspective from the time of the Global Financial Crisis (GFC) is useful. When Wall Street last impacted Main Street, it was the commercial banks that were at the eye of the storm. Those banks were operating on around 10 times leverage. So losses were significantly amplified, and deposits needed to be available immediately. Fast forward to today: do we face systemic risks? No. Banks are certainly lending to private credit funds, but those funds have leverage at most of two-to-one. The layers of leverage that were seen around the GFC are simply not there. 

And the vast majority of private credit investment is in the hands of institutional investors who have been content to stay invested throughout the past several months. They have not demanded their “deposits” back! Only around US$400 billion of the estimated US$1.8 trillion private credit market is in non-institutional hands. So you could say – from a negative headline perspective – that the tail was wagging the dog for a period of time.

 

APB: Bill encouraged us to focus on the facts when countering negative noise. What facts should private credit wealth investors focus on for clarity in times of confusion?

Carr-Coletta, PGIM: Let’s go back to basics. What asset class are we talking about here? It’s commercial lending; it’s the gold standard of underwriting, just that it’s being done by different kinds of financial institutions. In our case, that’s an insurance company – with 75 years of experience in direct lending – that’s clearly far less risky than a commercial bank.

There’s also something clear and important to be said about performance. The occasional individual write-down notwithstanding, the overall performance of direct-lending strategies with well-diversified portfolios is still very good. Returns have naturally come down post-COVID because base rates have come down, and we’ve seen compression in margins. But investors in private credit strategies are still getting returns with a significant pick-up over public market bonds. Even in a zero-interest-rate environment, private credit investors were getting returns of 7-8%.

 

APB: How real is the threat of AI to software firms for private markets and their investors?

Carr-Coletta, PGIM: Do I think that some private equity firms overpaid for software companies because they thought that growth was going to continue indefinitely? Probably. Do I think that it was over-levered to a certain extent? Possibly. Will we see some individual portfolio investments crash and burn? Yes. Is it going to be the end of the world that’s going to wipe out private credit? Emphatically not! 

 

APB: Are default risks rising in private credit?

Carr-Coletta, PGIM: Long-term, defaults have been around 5% for private credit. That’s the industry average. They are now at around 2.4-2.5%. But default does not mean credit loss. It means stress in the portfolio, and that needs to be worked through.

 

APB: What have actual credit losses been for your portfolio over time?

Carr-Coletta, PGIM: For the industry, 1%. For PGIM’s overall portfolio, near 0%. And post-default recovery rates in the middle market area of private credit in general average around 65%. At PGIM, we’re above 80%.

 

APB: How so?

Carr-Coletta, PGIM: Because of our investment philosophy. That’s all about lower leverage on the front end, tighter covenants, and the right to change our pricing if individual risk levels change. 

Fong, Julius Baer: Some recent media reports appear to overlook how senior-secured debt works, and these form the majority of private credit investments in direct lending. It’s also important to note that defaults do not equate to credit losses. For example, an overall loss ratio of 1% is very low. Top managers in direct lending have loss ratios under 10 bps.

Carr-Coletta, PGIM: Indeed. That’s because private credit either has covenants or, typically, a smaller lender group.

 

APB: Another widely circulated accusation against private credit is that underwriting standards have markedly deteriorated, with covenant-lite structures becoming the order of the day. True or false?

Carr-Coletta, PGIM: False – certainly for PGIM and for our middle-market area of focus. The preponderance of covenants in the middle market is certainly one of the reasons why recovery rates are better there than in the large-cap market. I’ll trade covenants for spread all day long – because I can always change my spread if a covenant is broken.

 

APB: How do you, as fund selectors, now weigh the current risks against the ultimate rewards of the private credit asset class?

Sin, Nomura: This is not a market that investors should try to time. It is the illiquidity premium that private credit offers on a long-term and sustainable basis that justifies – and will continue to reward – a buy-and-hold approach to the asset class. If elements of our industry have failed in their duty to educate clients, with the result that many have been under the impression they can liquidate their investments at any time, so be it. As we’ve already agreed, we all need to do better on the education front. 

But that does not detract from the long-term viability and attractiveness of well-managed, well-diversified direct lending portfolios in this – or any other – macroeconomic environment.

 

APB: What kind of returns are your clients currently looking for?

Sin, Nomura: High single-digit to low double-digit. 

 

APB: And how would you describe the current client appetite for private credit?

Sin, Nomura: It naturally depends on individual clients’ risk profiles, but, on average, they are still looking to allocate a high single-digit percentage to private credit. Clients are also skewing towards the European direct lending market, not least because many have been over-concentrated in the United States. We’re certainly looking at adding global and European private credit strategies to our platform at the moment.

Pak, Citi: The key portfolio construction questions in weighing long-term risk-reward expectations for private credit remain: what do you need in your portfolio upon which to anchor your income generation? And how much liquidity do you actually need? Clearly, if you are prepared to give up some liquidity, private credit offers a good way to diversify risk, generate a reliable income stream and provide a steady premium over public bond market equivalents. 

Many clients will still take some time from here to get comfortable with private credit again, but it’s a broad asset class that offers a variety of opportunistic strategies in addition to direct lending. And it will continue to play a large part in our portfolio construction conversations.

Fong, Julius Baer: We’re still positive on private credit and continue to suggest high single-digit allocations to the asset class for UHNW and family offices. We also like the European debt market, with base rates potentially going up. The Iran conflict has spurred inflation fears. A key feature of private credit is its floating rate structure, which provides a natural hedge to rising rates – a good income diversifier of traditional fixed-rate bonds. So, our main job remains getting our clients to stick to their allocations and not be distracted by the noise.

Our discussions with clients remain centred on the solid credit performance of direct lending, and the meaningful benefit of its illiquidity premium – reminders that patience continues to pay off. We also get them to focus on the companies in the underlying portfolios, and show them that loss ratios are very low, that default rates are similarly untroubling, and that recovery rates are still high. And for most of the portfolio companies in the past year, revenues are up, EBITDAs are up – often by double digits – and they are supported by strong economies. 

Ultimately, in a fundamentally healthy economy, a portfolio comprising strong, profitable companies is unlikely to face high default rates. And that’s exactly the position we’re in today. The only big unknown remains the fear of widespread AI disruption, but I feel this is going to have minimal impact in the next one to three years, which is the average life of a private credit investment.

Carr-Coletta, PGIM: How worried are we at PGIM about AI disruption? As a credit fundamentalist, we’re always looking for the boogeyman – what unknown factor can take a company down? AI is the current boogeyman. To combat it at PGIM, we go through every one of our portfolios and have every member of every team go through every individual investment and evaluate it on AI risks. That’s in addition to extensive conversations we conduct with the management teams at the portfolio companies, specifically addressing how they are addressing AI risks. Then we rate each company low-, medium- or high-risk. In addition to addressing it forensically and bottom-up at the portfolio level, we also address it from the top down at every investment committee meeting.

 

APB: How does a more diversified approach, specifically one with exposure to Europe, enhance portfolio construction and risk management?

Carr-Coletta, PGIM: We are certainly seeing a lot of interest in Europe – as well as Asia – as investors favour a more diversified approach to direct lending. It’s a continuation of a theme with funds flowing away from the US and into Europe in particular. We have a global strategy because we have a global footprint, and we only invest in geographies where we have boots on the ground, where we know the portfolio companies intimately and where we know the private equity sponsors. That said, I certainly believe we will continue to see growth in the US in the direct lending space, particularly in non-sponsored deal flow. 

 

APB: What proportion of your overall global strategy is currently allocated to Europe?

Carr-Coletta, PGIM: Around 30%.

Jones, PGIM: We’re also diversified in terms of the kinds of companies to which we lend. We focus on stable industries with predictable cash flows and tangible assets. This means we have limited software exposure – less than 6% across our direct lending portfolios, and we ensure that no single sector represents a significant proportion of our exposure. 

Similarly, because we have an extensive sourcing network, we focus on generating a mix of sponsored and non-sponsored deals. We favour larger companies with low leverage in non-sponsored markets and smaller, higher-leverage companies in sponsored markets. This helps both to optimise our risk-return profile and to ensure greater diversification.

 

APB: How should gatekeepers change their approach to manager selection in response to the market concerns and shifts we’ve been discussing?

Fong, Julius Baer: I’d just reiterate that we see no systemic issues in private credit. That said, we may be late in the credit cycle, so we’re deliberately choosing to go with more experienced managers who’ve navigated through multiple credit cycles, maintain a physical presence wherever they lend, and have a strong and proven track record of disciplined underwriting. Managers who, if they do have to “take the keys” to distressed companies, can achieve the highest recovery rates. 

It’s also become clear that only managers with significant scale can deliver the necessary depth and breadth across deal sourcing, underwriting, portfolio monitoring, default recovery and client education and servicing in today’s increasingly complex markets. So, be on the lookout for dispersion. 

Sin, Nomura: I couldn’t agree more, Bill. It’s quite possible that a number of the smaller and lower-tier managers fall by the wayside and that industry consolidation – in both private credit and private equity – continues apace from here. The flight to quality and scale is real, and it is happening.

Pak, Citi: As a private bank, it’s all about having the right number and quality of managers on our platform. That means managers we can truly partner with in bad times as well as good. There’s also a requirement to have a sufficient number of different private credit funds on our shelf to avoid the concentration risk we see with several of the big firms lending to the same companies in the same sectors in the same jurisdictions. 

Jones, PGIM: From our many recent client meetings with private banks across the region, the number one fund selector demand is for managers that have been cycle-tested across, not just one, but many cycles. That means managers who’ve witnessed the impact of wars, other crises and major technological disruptions, as well as differing economic and credit cycles. 

Gatekeepers are naturally also focusing on managers who can demonstrate laser focus in underwriting discipline, a high degree of transparency post-onboarding and a rigorous approach to capital protection. These should be givens, but that’s not always the case.

Carr-Coletta, PGIM: In tougher times, the cream rises to the top in manager selection.

The APB Private Credit Forum: 2026 Reality Check Participants