Private credit follow up

The private credit sector continues to be under stress. Headlines have calmed down a little bit, but the dynamics have not improved, at least not meaningfully. In the top chart below, you can see the quarterly redemptions since 2022 for the Busienss Development Companies (BDCs); up until 4Q25, 100% of redemptions were allowed and paid back to investors. Since then, due to an avalanche of nervous investors, redemptions have been gated and, as of last quarter, on average, less than half have been met. Several factors contribute to it: (1) perceived deterioration in credit quality on certain sectors such as software, (2) concentration, (3) increased numbers of tourist investors, that perhaps are not fit for the liquidity profile of the asset class, and finally (4) pockets of relaxed underwritings and pricing policies, that indicate over extension. In the bottom chart, you can see the price behavior of a representative group of BDCs over the last 12 months. Just 2 of them have shown positive price return (not including dividends) and the majority are down between 10-30%. It’s very important for the hyperscalers and, therefore, the equity market, that Private credit entities keep financing the AI needs, as they are the ones supporting the earnings growth we’ve seen. It’s critical to manage this redemptions frenzy and service liquidity requests in an orderly fashion to avoid panic and contagion to other areas of the market.

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