Ideas
Avoid 2020-2021 vintages; newer better.
Stress in private credit is concentrated in 2020-2021 vintages, where high leverage and floating-rate debt were underwritten when rates were near zero; coupons rose from about 6% to 10-11% while earnings grew only 2-3%, causing modifications and PIK. Subsequent vintages are performing very well.
Avoid 2020-2021 vintages; newer better.
Stress in private credit is concentrated in 2020-2021 vintages, where high leverage and floating-rate debt were underwritten when rates were near zero; coupons rose from about 6% to 10-11% while earnings grew only 2-3%, causing modifications and PIK. Subsequent vintages are performing very well.
Still earns illiquidity premium over BSL.
Senior direct lending has converged with broadly syndicated loans on leverage, covenants, and terms, but still offers a 150-175 bps premium over BSL. That premium is warranted for illiquidity and remains an acceptable core allocation.
High barriers keep non-direct spreads wide.
Non-direct private credit areas such as asset-backed finance, non-sponsored/life sciences, real estate debt, and infrastructure require specialist underwriting/structuring and lengthy diligence, creating higher barriers to entry. That should keep their spreads 250-350 bps over BSL and prevent near-term compression.
Fast paydown, diversification, high structural spreads.
Asset-backed finance lends against diversified pools of cash-paying, self-amortizing assets such as loans, leases, and receivables, so lenders get paid down quickly and can diversify across end markets. Banks are retreating, and structuring complexity/barriers to entry should keep spreads around 250-350 bps over BSL from compressing soon.
Combine private credit segments for yield premium.
A diversified private credit portfolio that combines senior direct lending with asset-backed finance, real estate debt, infrastructure, and non-sponsored lending can earn roughly 300 bps over broadly syndicated loans, or 200-250 bps over senior direct lending/BSL, because the non-direct segments add yield and diversification. This makes a multi-strat private credit portfolio attractive to LPs.
BSL recoveries worsen on liability management.
Broadly syndicated loan first-lien recoveries have fallen from 70-75 cents to 40-45 cents because liability management/up-tier transactions push incumbent lenders lower in the capital structure. Private credit recoveries are flat but still slightly better, so BSLs are less attractive on a recovery basis.
AI shift warrants SaaS lending caution.
AI and large language models are a paradigm shift that warrants caution in software/SaaS lending. Customers may shift spend to AI-native companies, seat-based revenue models face disruption from agent AI, and AI lowers switching costs via vibe coding. Only software with high ROI and deep IT-stack integration may be resilient; lending at 30-40% LTV helps but terminal value is uncertain.
Specialized, uncorrelated, growing private credit area.
Life sciences is Oaktree's biggest non-sponsored lending growth area. It requires specialized subject-matter expertise and is uncorrelated with the overall economy because drug performance depends on management/R&D rather than macro cycles, making it interesting for a multi-strat private credit portfolio.
Energy demand drives infrastructure lending growth.
Energy and infrastructure lending is a major growth area because US and European energy demand may grow 40%+ over the next two decades, grids cannot keep up, and AI plus electrification require substantial financing. These deals require specialist expertise and should carry persistently higher spreads.
Europe offers premium, better docs, growth.
European private credit is attractive as investors diversify away from US lending. It offers about a 50 bps unhedged premium over US senior direct lending plus potential FX hedge pickup, and markets are early enough to provide maintenance covenants, LME protections, lower leverage/LTVs, and better documentation. Germany's fiscal regime change adds growth momentum.
Asia offers premium and lender protections.
Developed Asia private credit, such as Australia and Singapore, offers about a 100 bps premium over US senior direct lending, along with maintenance covenants, LME protections, lower leverage/LTVs, and better documentation. The risk-adjusted pricing is attractive despite the modest headline premium.
German fiscal shift supports lending growth.
Germany's fiscal regime change, including lifting the fiscal brake, and improving high-velocity economic KPIs should drive growth and private capital demand. Broader Europe is also attractive, but Germany has a distinct policy-driven catalyst.
This Monetary Matters video, published February 01, 2026,
features Raghav Khanna
discussing 2020-2021 vintage private credit, Post-2021 vintage private credit, Senior direct lending, Non-direct lending private credit, Asset-backed finance private credit, Diversified private credit, BKLN, Software/SaaS private credit, Life sciences private credit, Energy and infrastructure private credit, European private credit, Developed Asia private credit, Germany private credit.
13 trade ideas extracted by AI with direction and confidence scoring.
Speakers:
Raghav Khanna
· Tickers:
2020-2021 vintage private credit,
Post-2021 vintage private credit,
Senior direct lending,
Non-direct lending private credit,
Asset-backed finance private credit,
Diversified private credit,
BKLN,
Software/SaaS private credit,
Life sciences private credit,
Energy and infrastructure private credit,
European private credit,
Developed Asia private credit,
Germany private credit
