As of September 2026 – unless otherwise stated
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Our previous posture of "disciplined optimism" remains validated by economic resilience; however, our year-end positioning is now defined by a critical shift in the expected policy path rather than economic strength alone.
Private credit’s growth story remains the primary narrative, showing no signs of slowing. Global fundraising in H1 2026 hit $190 billion—a 53% surge versus H1 2025. This puts the asset class on pace to shatter the full-year record of $240 billion1, marking another landmark year for the space. As institutional allocations continue to rotate toward the asset class, private credit is solidified as the essential anchor of the modern alternative portfolio. Its ability to thrive in a shifting rate environment underscores its structural resilience and growing importance in global capital markets.
This growth persists despite a sharp reversal in rate expectations. Following Chair Warsh’s hawkish Jackson Hole address and inflationary pressure from AI CapEx and tariffs, markets have pivoted from pricing cuts to pricing two hikes within the next year. With six-month annualized PCE at 4.1% and reduced forward guidance, we anticipate heightened volatility around every data release.
The real economy continues to absorb these conditions well. Labor dynamics are nuanced rather than deteriorating, and the Eurozone’s 0.4% Q2 growth2 beat expectations, offsetting weakness in China. We are navigating a "slower but durable" post-COVID equilibrium where the structural tailwinds for private credit remain the most compelling component of our outlook.
Credit fundamentals have continued to hold. Bank credit growth has stabilized around its long-term average, delinquencies have passed an inflection point, and severe bankcard delinquency was essentially flat year-on-year at 2.8%. Small business health is likewise stable, with 35% of firms now expecting to add staff and two-thirds expecting revenue growth3. Taken together, these indicators support a measured approach to putting capital to work.
Our conviction in asset-based lending and real estate credit has been reinforced, not revised. We remain active in making investments that exhibit a combination of the following characteristics: senior secured, shorter duration, self-amortizing, floating rate, identifiable collateral protected by structural features, and sound sponsorship. This allows the private credit market to benefit from the higher-for-longer path. We believe this emphasis on structure and collateral remains important as the rate environment evolves.
We remain cautious on direct lending. Spreads are flat on every measure, and the share of borrowers with interest coverage below 1x has increased — not a direction we like absent wider compensation. A new area of research and diligence for the research team has been credit secondaries, where possible discounts can be achieved unrelated to asset performance. We will continue to evaluate those opportunities selectively, with the same focus on downside protection that guides our broader portfolio.
Our posture heading into year-end: constructive but more alert — favoring secured, floating-rate, asset-backed exposure over anything unsecured or cash-flow dependent.
Direct lending spreads are flat on every measure, with the lower middle market pricing weaker despite financing smaller borrowers.
Credit metrics remain benign — core middle-market defaults of 2.3%, but coverage is the watch item, with borrowers below 1x up to 8.2% from 7.5%4.
These are spreads observed by the investment team when reviewing deals. Spreads reflect trimmed mean deal spreads of investment pipeline reviewed by the NCM investment team.
1. Source(s): With Intelligence (part of S&P Global), Private Credit Fundraising Report H1 (August 2026); Private Debt Investor Fundraising Report (July 2026); PitchBook, Q2 2026 Global Private Market Fundraising Report (September 2026); Dakota, Global Private Credit Asset Class Review Q2 2026 (September 2026).
2. Source: Pantheon, August 2026 EZ Chartbook.
3. Source: US Chamber of Commerce
4. Source(s): KBRA DLD, by volume. Data through TTM 8/18/26. The Direct Lending Index comprises $300 billion (3,000 borrowers); the LMM Index includes $20 billion (800 borrowers). Shifts to PIK and covenant violations are excluded. The non-accruals direct lending and lower middle market rates are at 1.8% and 1.8%, respectively. The KBRA DLD Leveraged Loan Index represents $1.6 trillion in outstanding volume, and the KBRA DLD High Yield Index totals over $1.3 trillion in outstanding volume; Lincoln Lens. Data as of Q2-26
The views expressed in this chart are those of the Investment Team of Nomura Capital Management LLC and are based on the Investment Team’s forward-looking assessment of credit markets as of the date referenced above. The views expressed herein are subject to change at any time following the publication of this report. The arrows in the chart reflect the change in the Investment Team’s outlook of each credit market since its prior quarterly market commentary. This chart is provided for informational purposes only and is not intended to represent a recommendation from Nomura Capital Management LLC to invest in, or divest from, the credit market asset classes referenced herein.
| Bear | Base | Bull | |
| Description | Mild Recession (Stagflation) | Goldilocks | Expansion |
| Probability | 25% | 45% | 30% |
| Growth (Real GDP, QoQ) | 0.5%-1.00% | 2.00%-2.25% | 3.00%-4.00% |
| Inflation (Core PCE, YoY) | 3.25%-4.50% | 2.50%-3.50% | 3.25%-4.50% |
| Unemployment | 5.00%-6.00% | 4.50% | 4.25%-4.30% |
| Risk Assets | Price Depreciation | Flat to Higher | Higher |
| Change in Fed Funds Rate | -25bp (-0.25%) to -100bp (-1.00%) | 0 to + 25bps (+0.25%) | +25bps (+0.25%) to +50bps (+0.50%) |
| Base Rates (Front-End) | Lower | Flat to Higher | Higher |
| Volatility | Higher | Higher | Flat |
• Stagflation takes hold: six-month PCE has annualized at 4.1% against 3.7% over twelve months, with 54% of components rising faster than 3%. • If sticky inflation forces further tightening, a labor market already showing depressed hiring and a falling participation rate would deteriorate rather than simply moderate. • The consumer is the transmission channel — savings rates remain low, loan delinquencies are elevated and mortgage rates have moved back up to 6.7%. • Reduced Fed forward guidance amplifies volatility around each data release, and credit stress broadens beyond today's pockets, with conduit CRE delinquencies already at 8.4%. | • Our highest-probability outcome assumes inflation stays elevated but contained while growth holds, leaving spread income rather than duration as the driver of returns. • Following Chair Warsh's hawkish Jackson Hole address, markets have moved from pricing cuts to 53bps of tightening over the next twelve months; we assume a hawkish hold to a marginal hike. • Labor moderates without breaking; unemployment and participation are falling in tandem while jobless claims and payrolls remain muted. • Credit stress stays within historical norms — bank credit growth has stabilized around its long-term average, delinquencies have passed an inflection point, and direct lending defaults remain in the mid-to-high 2% range. | • AI investment moves beyond displacement into measurable productivity and margin expansion, pushing GDP growth into the 3.00%–4.00% range. • The impulse is not solely domestic — the Eurozone beat expectations with 0.4% second-quarter growth and unemployment still low. • Corporate competition for talent keeps unemployment near record lows, neutralizing AI-related redundancies, while the Fed implements 25–50bps of additional hikes to prevent overheating. • Volatility moderates as trade policy clarifies and oil-driven inflationary pressure abates, supporting a floating-rate, asset-backed book that earns through higher base rates. |
The views expressed in this chart are those of the Investment Team of Nomura Capital Management LLC and are based on the Investment Team’s forward-looking assessment of the general macroeconomic environment as of the date of this report. The Bull/Base/Bear Market (“Market Scenarios”) outcome probabilities noted in this report reflect the Investment Team’s forward-looking estimate of the probability of each Market Scenario occurring within the next 12-18 months from the date of this report. The market metrics noted within this report (Growth, Inflation, Unemployment, Risk Assets, Base Rates and Volatility) represent the Investment Team’s forward-looking estimate of each market metric resulting from the corresponding Market Scenario. All views and estimates contained within this report are as of the date of this report and are subject to change at any time following the publication of this report.
Building on the stability observed in Q1, Private Credit fundamentals remain resilient despite lingering market skepticism. The momentum carried into Q2 as covenant defaults further moderated to 2.7% — remaining significantly below the 3.8% six-year average — providing continued evidence of disciplined underwriting and structural durability through this sustained higher-rate environment.
The analysis was performed based on a size-weighted approach, which considered the total net debt balance for each of the portfolio companies that had a defaulting security in the respective quarter. A default is defined as a covenant default and not necessarily a monetary default.
Building on last quarter’s momentum, the private credit market continues to see improving economic terms. PIK interest utilization has further eased to 11.1% from its late-2025 peak, signaling a healthier cash-pay environment. More importantly, 'stress-driven' PIK amendments have continued their descent to 55.4% (down from 62.5%), further validating the recovery in borrower health.
Data from Lincoln International
Fueled by surging investor demand, private capital has assumed an increasingly central role in Asset-Based Lending, steadily displacing traditional bank lenders as the dominant source of financing.
Source: Crown Partners August 2026 ABL Report
Source: With Intelligence by S&P Global
Following years of record-high supply, development pipelines are now receding across all property sectors as new construction starts retreat from their peaks. This tapering of supply is expected to drive higher absorption and occupancy rates, paving the way for sustained rent growth in supply-constrained markets.
Data sourced from CoStar
With $35 trillion in residential equity and 40% of U.S. homes owned outright, the mortgage landscape is defined by a highly resilient borrower base. This 71% equity cushion, paired with historic low delinquency rates, underpins a massive opportunity to provide liquidity through HELOCs and Closed-End Second Mortgages.
Growing institutional demand is driving record origination volumes, supported by strong yields and stable credit fundamentals. Despite the potential for tighter spreads due to increased capital competition, underwriting standards remain healthy. Success in the current market continues to be defined by selective origination and the ability of experienced lenders to navigate shifting pricing dynamics through disciplined credit analysis.
| Origination Partner #1 | Origination Partner #2 | Origination Partner #3 | Origination Partner #4 | |
| Lending Standards | Disciplined within a defined credit box | Maintaining discipline despite some competitive pressure | Selective as borrowers seek higher leverage | No market-wide leverage increase expected |
| Market Growth | Origination volumes rising | Continued growth; increasingly institutional | Healthy demand despite competition | ~5–7% origination growth expected in 2027 |
| Credit Performance | No broad-based deterioration | No broad early indicators of stress | Very limited project-level stress | No material stress or change in borrower behavior |
| Pricing & Returns | Attractive yields despite tighter pricing | Spread compression, but target returns remain achievable | Tighter margins in high-competition markets | Tightening spreads; economics still viable |
| Market Selection | Selective on a deal-by-deal basis | Avoiding areas with higher crime or vacancy rates | Favoring areas with economic tailwinds | Selective in the Sun Belt; constructive in the Northeast |
| Capital Availability | Improving | Institutional capital expanding | Plentiful but selective | Securitization supporting liquidity |
Source: Federal Reserve Bank of St. Louis, Freddie Mac, National Association of Realtors, Originator commentary based on NCM discussions with four RTL originators
Core middle-market direct lending continues to outperform, maintaining lower default rates and loss-given-defaults (LGDs) than the leveraged loan, high-yield, and lower-middle-market segments. NCM remains committed to a data-driven portfolio construction strategy, intentionally avoiding the market segments most susceptible to volatility.
Source: KBRA DLD, by volume. Data through TTM 8/18/26.
Source: Lincoln International; KBRA DLD. Data as of September 2026.
*Spreads noted are average of the pipeline reviewed by the NCM investment team
Equipment, infrastructure and inventory collateral — pipeline spreads widened ~250bps this quarter.
Home equity and residential transition loans in high-HPA markets, backed by real borrower equity.
Short-duration bridge and gap loans: multifamily, student housing, warehouse; retail vacancy just 4.4%.
Diversified consumer / SME, IP and royalty cash flows; litigation finance and select auto.
Cyclical tights leave risk/reward asymmetric — direct lending spreads flat at ~500bps while sub-1.0x coverage rises.
This is for informational purposes only and is not intended to represent a recommendation from Nomura Capital Management LLC to invest in, or divest from, the credit market asset classes or security types referenced herein.
Nomura Capital Management LLC (“NCM”) is a registered investment adviser. The information set forth herein, or in any of NCM’s market commentaries or similar writings or publications, is for informational purposes only and does not constitute financial, investment, tax or legal advice. This information is intended to be informational in nature and, by receiving this communication, you agree with its intended purpose described above. The views and/or strategies described in this communication may not be suitable for all investors. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that consider the particular facts and circumstances of an investor’s own situation. All investments are subject to varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy or product referenced directly or indirectly in this communication will be profitable, perform equally to any corresponding indicated historical performance level(s), or be suitable for your portfolio.
These materials reflect the opinion of NCM on the date of production. Opinions and statements of financial market trends that are based on current market conditions constitute our judgement and are subject to change without notice. Past performance does not guarantee future results. Where data is presented that is prepared by third parties, such information will be cited, and these sources have been deemed to be reliable. However, NCM does not independently verify or otherwise warrant the accuracy of this information. All investments are subject to risks, including the risk of loss of principal.