As our Quote of the Week concisely frames it, the world is changing from one where risk-taking was rewarded, to one where it is punished if not appropriately managed. The question for private credit investors is, can you be rewarded while managing today’s level of greater risk?

In a nutshell, the Fed’s withdrawal of systemic capital and relentless rate hikes plus the flight of cash from liquid credit has opened a window of opportunity. Yet higher yields will drive up default rates based on tighter ability of issuers to meet interest payments. Squeezing capital supply and spending could then trigger an economic slump.

Ironically the current credit vintage, which sports lower leverage, tighter structures, and wider pricing, is significantly more investor-friendly than anything over the last decade. Not since 2010 have we seen near 10% yields for traditional middle market senior debt. But issuers who don’t need to face the debt market could elect to wait until conditions ease.