Private Credit

Average deal sizes in European private credit have surged from €36M to €90M year-over-year, reflecting deeper capital availability from private credit funds, family offices, and banks now competing for quality tech deals at earlier stages.

European venture debt hit nearly €6 billion in Q1 alone, on track for 18% growth year-over-year, driven by capital-intensive deep tech, hardware, robotics, and energy companies that equity investors now view as having moats rather than being unsexy.

Private credit funds contractually limit redemptions; in a stress scenario, forced selling could cascade through opaque portfolios with unknown mark-to-market losses — a potential GFC-style surprise.

Bank lending to small businesses has collapsed post-GFC (US approvals down to 41% from 50% in 2015); Stripe's randomized study shows Capital recipients grow 27 percentage points faster, with the top decile growing 3x faster and even low-credit-score businesses accelerating 11-18pp, proving embedded capital access is a potent growth catalyst.

Hardware and deep tech companies are using working capital loans, revenue-based financing against long-term off-take contracts, and mezzanine structures instead of pure equity, with lenders advancing against signed data contracts for satellites, drones, and data centers.

Africa holds 60% of global prime solar potential but has fewer panels than Florida. Developing countries face interest rates 2-3x higher than wealthy nations due to currency, legal, and governance risks, starving them of clean energy capital while they receive 43% of fossil fuel investment — a structural capital misallocation.

Direct lending's $1.7T size is modest relative to total credit; even a financial-crisis-level 5-6% net loss rate is offset by 9-10% coupons over a long cycle, making the asset class non-systemic.

Active counterparty monitoring and asset risk modeling allowed NBIM to reduce securities lending exposure to Credit Suisse from 60B to 600M kroner ahead of its 2023 collapse, demonstrating tail risk management in a strategy generating 6B kroner annual excess returns.

CPPIB uses a partnership model: investing with top external managers while co-investing at advantageous economics (lower fees/carry). Internal teams build on external origination, so blended returns matter more than comparing internal vs external in isolation.

Private credit has seen broad deterioration in underwriting standards with aggressive assumptions, higher leverage, weaker covenants, and ratings arbitrage; a coming credit recession will be worse than expected as many of the thousand private credit funds lack experience.

After the 2008 financial crisis, ICONIQ invested heavily in middle-market private credit because lenders were being paid exceptionally high yields to finance businesses shut out of traditional banking.

Alternative assets/private credit remain modeled in disconnected spreadsheets with complex waterfall structures, creating a massive opportunity for digital platforms to replace Excel as the state-of-the-art — Sixth Street is building this infrastructure as AUM scales past $100B.

Fitch data shows private credit concentrated in lowest quality tier; managers avoid marking defaults via waivers/amendments, while BDCs take equity risk via PIK debt in deteriorating middle market companies.

Understanding enterprise value across full capital structure lets Third Point buy fulcrum securities: Twitter debt at 96c yielding 12% (largest credit position) and XAI debt despite no cash flow, because equity analysis de-risked the credit.

The factory model—industrializing fundraising then deployment—causes GPs to lower underwriting standards, raise narrow-strategy perpetual BDCs with quarterly liquidity promises backed by illiquid assets, and engage in inflow investing that ignores supply/demand dynamics.