In private credit, the character of your deal sourcing determines the destiny of your portfolio. How new transactions come in the door, and how you choose the best ones to close, drive your performance. Nothing else matters.

As we’ve learned in this series, private credit developed from the core middle market (CMM) (see Chart of the Week). This set the principles that became popular with issuers and investors alike: loans to small-to-medium-sized enterprises (SMEs) in diverse, defensive sectors backed by private equity sponsors with conservative terms and structures.

Select lenders stuck to this strategy even as enormous retail inflows reshaped the large end of the market. Terms there mimic bank loans and bonds – large exposures in momentum-driven sectors, high leverage, low spreads, and, critically, public style liquidity – elements contributing to private credit’s current difficulties.