Global Private Credit thoughts
San Francisco and Lisbon-based KIÉR LIÓR provides institutional investors, family offices, and direct lenders with institutional-grade oversight, underwriting and portfolio management services for international private credit portfolios.
On the subject of Private Credit, their musings are well worth your time, remembering the comments are typically U.S. and Euro-centric, where conditions and legal frameworks may not favour lenders as much as they do in Australia.
Reflecting on a recent episode of the Credit Edge podcast featuring Goldman Sachs Chief Credit Strategist Amanda Lynam, KIÉR LIÓR Managing Director Aznaur Midov noted:
On private credit defaults
“Private credit fundamentals continue to show a normalisation in credit metrics, rather than widespread fundamental deterioration. There has been a slight uptick in non-accruals and net unrealised losses, but realised losses are actually below trend, while third-party data also shows stability in Payment-in-Kind (PIK) and covenant defaults. The key story is dispersion in private credit. Certain vintages, particularly 2021 vintages, remain under pressure, and some newer entrants may have originated deals that more experienced managers would have passed on. However, many of the widely reported defaults from late 2025 were not even in the private credit market. While the default rate is rising slightly, the broader trend remains one of normalisation from very low levels in non-accruals and realised losses, rather than a retest of peak default levels.”
On tight credit spreads
“Credit spreads are near pre-war lows despite weaker growth, higher inflation, and tighter monetary policy, especially in Europe, making valuations look stretched. Tight spreads are driven mainly by strong demand from yield-focused investors (insurance companies and pension funds), not fundamentals. At the same time, yields remain high due to elevated rates, creating an unusual combination of tight spreads and elevated yields. Many expect spreads to widen, especially given today’s higher inflation compared to late 2024.”
On the drivers of the credit market
“The market is priced for perfection at a point when it is expecting to absorb a wave of supply. Spread forecasts are for modest widening, despite resilience in the economic backdrop and on the corporate side.
“For once, equity market sentiment seems to be moving credit. Credit investors are finding it hard to stay negative with optimism around the recent earnings season, but yield-based buyer sentiment remains in the driver’s seat. A key risk is disorderly rate volatility. If that happens, yield-based investors may step back because they lose confidence in deploying, even if yields still look attractive.”
On AI-infrastructure financing
“AI infrastructure financing is essentially project finance, with rating methodologies that skew towards project finance, not corporate credit. However, many of these financings are simply too large for the traditional project finance market, effectively creating a new asset class. The biggest challenge for investors has been the heterogeneity of all of these different structures. They do not follow the same framework, with varying amortization profiles and construction risks, and in some cases it is unclear who’s on the hook if construction runs over budget or is delayed.
“The other key point is that once the lease terms are set, the economics of AI don’t flow through either positively or negatively. If AI proves far more profitable than expected, that should be reflected in unsecured hyperscaler bonds, but it will not necessarily lead to lease terms being restruck.”
Conclusion
On these observations from KIÉR LIÓR, I believe they reinforce an important point we have made previously: not all private credit is created equal. As conditions become more challenging for some lenders and loans, the quality of underwriting, security and portfolio construction becomes increasingly important. This is one reason we favour Australian private credit strategies backed by diversified portfolios of short-duration, asset-backed loans, where lenders have strong security and greater control over outcomes.
If you would like to learn more about the Private Credit funds that we offer, please fill out the form below and a member from our team will be in touch.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
