Private credit

The sector was also depressed by concerns around private credit markets and the impact of AI on data-heavy parts of the sector, including stock exchanges.

At least three forces drove the swings: the AI-related drawdown and the recurring fear of a private credit-led meltdown, both carried over from 2025, now joined by the war in the Middle East.

Barring any further deterioration in the economic outlook or negative headlines around private credit, our view is that corporate credit spreads will continue to widen as the market digests this unprecedented wave of new issues.

While I do not discuss individual short positions, our short book continues to reflect several recurring themes that are largely unchanged from the first quarter: • Private credit lenders/private equity – We remain short a basket of companies exposed to the private credit ecosystem.

Rather more progressive was the re-rating of each dollar of earnings, despite the emerging issues with private credit, which clearly presages problems within private equity, and increasingly sketchy participation in round-robin financings.

We also initiated a position in Blackstone, returning to alternative asset managers after weakness driven by private credit concerns and retail redemption requests created a more attractive entry point.

Within fixed income, high yield outperformed treasuries, investment grade corporates, bank loans, and private credit but underperformed emerging market debt.

Shares of Blackstone Inc. continued to be volatile and were a drag on performance in the second quarter as mounting redemption pressures at Blackstone’s Private Credit vehicle (BCRED) and sector-wide liquidity fears overwhelmed an otherwise constructive fundamental backdrop.

I believe the private credit scare will pass and AUM will march higher, driven by the maturation of existing strategies and the development of the high-net-worth channel.

The other new product is an interest-bearing special fund under the name ACATIS Direct Lending Fund.

Performance was partially offset by select non-REIT holdings facing headwinds from housing affordability pressures, AI disruption concerns, software sector exposure, and the structural dynamics of private credit and semi-liquid vehicles.

We sourced the opportunity through our network, via one of the company’s equity investors and a private credit fund with which we are friendly.

Preceding the momentum in defense was overenthusiasm for gold and cryptocurrencies, as well as sustained trading into private credit and collateralized loan obligations, which are showing fresh cracks.

Strong company performance has been overshadowed by sector-wide concerns including the durability of business development companies as a growth vector, and the risk to asset managers who have high investment allocations to private credit and/or software companies which may be at risk for disintermediation.

Hamilton Lane, a provider of private markets investment solutions, was the sector's largest detractor, falling -21% as the space contended with ongoing concerns around private credit redemptions and optimistic marks on software investments; our granular analysis of the company's exposures continues to suggest the decline is overdone, and we trimmed the position modestly.

In addition, alternative asset manager stocks have been similarly punished due to their underlying exposure to software-related assets and private credit.

It is an alternative asset manager widely considered to be the leading private credit provider globally.

Broader concerns about private credit exposure and AI- driven disruption risks to software-heavy loan portfolios weighed on the entire alternative asset management sector throughout February.

Markets were challenged by tariff-related uncertainty, renewed scrutiny around the sustainability of AI-driven growth, and emerging concerns within private credit, before geopolitical developments became the dominant driver of returns.

The JP Morgan leveraged loans index suffered a loss of -0.44% for the quarter and ended with a yield of 8.63%, which was 90 bps wider than the previous quarter.

There were already a number of worries brewing under the surface – elevated capex budgets in Mag 7 stocks, AI disruption fears in software, and redemption gates in private credit.

Broader skepticism toward private credit weighed on Ares Management (ARES) in the quarter.

Some financials, like those that lend on a floating rate basis (think private credit) may initially be aided by a higher rate environment but later harmed as the credit quality of borrowers is strained and a challenge to the floating rate lending model is exposed with a lag, for example.

Although the company reported solid results, including healthy fundraising and growth in fee-related earnings, investors remained focused on broader concerns around private credit exposure and the pace of deal monetization.

During the quarter, alternative asset management came under pressure as concerns surrounding private credit intensified.

The dislocation also spilled into private credit, where several firms with outsized exposure to software faced redemption pressures.

So ware has become so ostracized that even life insurance and annuity companies must aggressively downplay their private credit exposure to the sector.

The alternative investment space has generally been tracking lower on concerns surrounding private credit redemptions and optimistic marks on software investments; however, our granular analysis of the company’s exposures suggests that the decline in the stock is overdone.

Both KKR & Co (KKR) and Equitable Holdings (EQH) were weak as investor worries around the private credit ecosystem accelerated during the period.

After a profitable run in Bank of America, we sold the position as concerns regarding private credit exposure had the potential to impact valuation.

A quick comment on private credit (Cambiar has no exposure to this asset class) – the combination of abundant liquidity and a willingness to take on risks that others (i.e., banks) likely passed on has contributed to the explosive growth in private lending that is now showing signs of struggle via defaults and loan markdowns.

Structural concerns around private credit, including liquidity mismatches, exposure to borrowers threatened by AI innovation, opacity, and incentive misalignment, continued to surface over the quarter.

Financials contributed to benchmark relative performance as the portfolio avoided major drawdowns in high-risk business models such as private credit firms, and “buy now, pay later” lenders.

We also think there may be shocks and surprises, and disappointed investors, in some of the alternative markets that have less liquidity, whether private equity or private credit.