How will higher rates affect private credit?

Private credit presents a mixed bag in this rising rate environment. While investors benefit from higher yields and reduced duration risk thanks to floating rate structures, borrowers face increasing financing costs.

This dynamic means new capital deployed into private credit will capture attractive current yields, and existing portfolios can potentially trim overall duration while maintaining income. However, the increased burden on corporate borrowers could lead to credit stress over time, particularly for weaker companies.

The key takeaway is manager selection. Experienced private credit firms that can navigate deal selectivity and manage stressed loans will likely outperform. Investors should monitor default rates and credit quality trends closely as higher rates persist.