In private credit, the winners may be the managers built for tougher markets

Private credit has spent much of the past year fending off scrutiny. Questions around leverage, evergreen structures, liability mismatches and liquidity have pushed the asset class into headlines that are often more dramatic than nuanced.

Logan Nicholson’s case is not that the concerns should be ignored. It is that investors need to separate weak structures from strong ones, and weak underwriting from strong underwriting. In his telling, this is not a moment to retreat from private credit. It is a moment when the best-built managers may have their biggest opportunity to deploy capital well.

That framing matters. Nicholson agrees this is an exciting period for private credit, but only when the fund is built defensively; with the right liability structure and the flexibility to benefit from market widening, not be hurt by it. For advisers, that is an important distinction. Private credit is not one trade. It is a broad market with very different levels of risk, complexity and resilience, depending on the strategy and the manager.

Borrowers are choosing private markets, not being pushed there

Nicholson’s key point is that private credit’s long-term growth stems from borrower choice, not just market disruption or weaker issuers being pushed out of public markets. That is a central point in his investment case. In his view, a growing number of companies are opting for private capital even when public alternatives are available and, on the surface, cheaper.

The logic is straightforward. Private credit offers speed, certainty, customisation and continuity. A borrower can work with a small group of lenders, tailor financing to the business’s actual needs, and avoid the uncertainty of public syndication, ratings processes, and market windows that can close with little warning. For sponsors and management teams trying to move decisively, Nicholson argues that is worth paying for.

This is one reason he remains constructive on the asset class despite all the noise. If the best borrowers actively choose private markets for structural reasons, rather than because they lack alternatives, that strengthens the quality of the opportunity set. It also explains why direct lending has kept taking share from public credit, even when public spreads were tight and syndicated markets were functioning well.

The premium remains attractive, especially now

Nicholson’s second argument is economic. Private credit still offers a meaningful premium over comparable public market exposures. And that premium is becoming more interesting again as volatility rises and spreads widen. In his view, this is exactly the kind of moment direct lending funds should have been built for.

His point is not just that yields are higher. Investors earn more by giving up liquidity in a structure that, if properly matched, should not need daily or immediate redemptions. Nicholson makes it clear that evergreen vehicles were not designed to provide full liquidity. They were designed to align investor capital with the duration of the underlying assets. That is an important distinction in today’s debate.

For advisers, the implication is that structure matters as much as yield. A fund with the wrong liability profile can be vulnerable even if the underlying credit is fine. A fund with the right structure, by contrast, can use periods of market widening to deploy capital into better risk-adjusted opportunities. Nicholson says Blue Owl has deliberately positioned for that, sitting below its target leverage range and preserving dry powder for exactly this kind of environment.

“We are striving to make credit boring at Blue Owl.”

Private credit is not a monolith

One of Nicholson’s more useful observations is that investors keep talking about private credit as if it were one homogeneous asset class. In reality, it contains a wide range of strategies. These strategies range from relatively conservative senior secured direct lending through to much riskier and more opportunistic forms of capital. That means broad commentary about “private credit risk” is often too imprecise to be genuinely helpful.

Blue Owl’s own strategy is deliberately positioned at the larger, upper middle market end of direct lending. Nicholson describes this as the part of the market where companies are choosing private credit from a position of strength, rather than necessity. These are billion-dollar revenue businesses, usually sponsor-backed, with scale, financing options and strategic choice. The focus falls on senior secured lending, positioned at the top of the capital structure, where lenders enjoy stronger protections and higher recovery prospects if things go wrong.

Just as important is what the firm avoids. Nicholson stresses that his team excludes the cyclical sectors that drove many of the worst losses during the global financial crisis. This includes energy, homebuilding-related exposures and retail. This is not an underweight call, it is a hard exclusion. For advisers trying to work out what kind of private credit they actually want in portfolios, that sort of line-drawing may matter more than any general discussion of the asset class.

Underwriting discipline still decides the outcome

Ultimately, Nicholson brings the whole discussion back to underwriting and portfolio construction. Blue Owl’s self-description is intentionally unglamorous. The aim is stable income, downside protection and as little loss as possible. The number he highlights most proudly is the firm’s very low historical annual loss experience, which he presents as evidence that making credit “boring” is not a slogan but a real investment discipline.

That discipline is supported, he says, by scale, sector specialisation and team stability. Blue Owl has built a large research bench, retained its senior talent and focused on sectors it knows deeply. That gives it the ability to move patiently. It helps resolve problems as they emerge and avoids forcing reactive portfolio decisions. In a market where some managers may now be contending with financing pressure or structural strain, Nicholson is making the case that this is exactly when long-duration underwriting culture should matter most.

Private credit still deserves attention, not because the headlines are wrong, but because the headlines are too broad. The asset class undergoes stress-testing in real time, and that may prove valuable. Poor liability design or weak underwriting could expose managers. Managers built to withstand volatility may find that the next period of deployment becomes one of the better vintages in recent years. That is not a reason to suspend scepticism. It is a reason to apply it more precisely.