Oxane Mid-Year Pulse 2026

Private Credit’s Next Phase: A More Disciplined Market

Beyond the Recent Market Headlines
Private credit has entered a more selective phase in the first half of 2026. Geopolitical tensions, volatile energy markets and persistent refinancing pressures have added to uncertainty across borrowers and sectors. Recent redemption pressures in some semi-liquid private credit vehicles, alongside corporate failures involving allegations of fraud, have added to the scrutiny. But these developments do not point to a single, broad-based deterioration in credit quality. They have also brought a different set of vulnerabilities into focus, including liquidity management, data quality, collateral verification, valuation governance and portfolio oversight. The distinction between credit risk and operational risk is becoming increasingly important.

Despite these challenges, private credit has remained broadly resilient. What has emerged instead is a market characterized by increasing divergence. Borrowers, sectors and asset classes are no longer moving in lockstep, creating wider performance gaps and a greater need for disciplined underwriting, valuation rigor and active portfolio management. This is also raising the bar for the operating models supporting private credit portfolios. Connected infrastructure that brings together borrower data, valuations, covenant monitoring and reporting can give firms a consistent view across portfolios and help them scale with greater confidence and control.

In many ways, H1 2026 marks the transition of private credit from a growth story to a maturity story.

Dispersion, not Distress
One of the defining characteristics of H1 2026 has been the growing divergence between market winners and losers. While headlines have focused on rising consumer stress, pockets of refinancing risk and questions around private credit exposure, broader market fundamentals have remained relatively stable.

Within asset-based finance and specialty finance, pockets such as consumer credit have shown signs of pressure in both the U.S. and U.K. However, the impact has been highly uneven. Rising consumer delinquencies and weaker household spending have increased pressure on certain retail, discretionary spending and consumer-exposed businesses, while sectors supported by strong structural growth drivers continue to demonstrate resilience.

Rather than triggering a broad deterioration in credit quality, these conditions have reinforced a widening gap between stronger and weaker borrowers. For private credit managers, the result is a market where borrower-level outcomes matter more than macroeconomic direction. Credit performance is becoming increasingly dependent on factors such as sector positioning, earnings resilience, liquidity profiles and refinancing readiness.

As dispersion increases, managers are placing greater emphasis on portfolio surveillance, covenant monitoring and the early identification of emerging risks, recognizing that performance differences across borrowers are likely to widen further through the remainder of the year.

AI Reshaped the Technology Credit Landscape
Artificial intelligence has emerged as a significant theme for private credit in H1 2026, particularly across technology lending and infrastructure financing. Its impact is moving in two directions: creating substantial demand for capital while also forcing lenders to reassess risk across existing technology portfolios.

The expansion of AI is driving investment across data centres, power generation, semiconductor manufacturing, fibre networks and broader digital infrastructure. AI-related investment could exceed $2.8 trillion between 2025 and 2029, creating a substantial financing opportunity across both public and private credit markets.

At the same time, AI is reshaping underwriting assumptions. Lenders are increasingly evaluating whether portfolio companies are positioned to benefit from technological change or vulnerable to disruption. This is particularly visible within software markets, where concerns around AI displacement have led many lenders to reduce exposure and apply tighter underwriting standards.

The so-called "SaaSpocalypse" has contributed to significant valuation resets across portions of the software sector, raising the market-cap-weighted one-year PD to 12 basis points, twice its level in December 2025. Although current levels are not concerning yet, this highlights how rapidly technology themes can influence private credit risk assessments.

The result is a market where AI is simultaneously creating new lending opportunities while increasing performance dispersion across existing portfolios.

Valuation Rigor Moves to the Centre Stage
As performance gaps widen across sectors and borrowers, valuations are coming under scrutiny across private credit portfolios.

Historically, many portfolios benefited from relatively stable performance and broadly supportive market conditions. H1 2026 has been different. Managers are increasingly confronted with borrowers exhibiting materially different earnings trajectories, refinancing prospects and liquidity profiles within the same portfolio. This has increased the importance of scenario analysis, borrower-level sensitivity testing and refinancing assessments when determining fair value.

The growth of semi-liquid private credit vehicles has added another layer of scrutiny. As the investor base expands beyond institutional allocators and into wealth channels, expectations around valuation consistency, documentation and transparency continue to rise. At the same time, the continued growth of credit secondaries is creating stronger links between manager marks and observable market pricing.

Increasingly, the discussion is no longer about how frequently valuations are performed, but about governance. Investors and regulators are paying closer attention to how assumptions are developed, challenged, documented and applied consistently across portfolios.

Underwriting Standards Tighten as Markets Reprice Risk
The impact of growing borrower dispersion is now being reflected in credit pricing and underwriting standards. Investment-grade credit markets remain supported by strong demand, keeping spreads close to historical lows. In contrast, private credit and speculative-grade markets are seeing increasing differentiation. Lower-quality borrowers, particularly those facing refinancing pressure or weaker operating trends, are being priced at wider spreads, and subject to more conservative leverage structures and heightened diligence requirements.

Lenders have also become more disciplined around documentation, covenant protection and equity support requirements. As uncertainty increases, the focus is shifting away from maximizing deployment and toward preserving downside protection. Strong borrowers continue to access capital efficiently, while weaker credits face significantly higher funding costs and greater scrutiny.

The environment increasingly rewards managers with robust underwriting frameworks and the ability to proactively identify emerging risks before they become portfolio impairments.

SRT Markets Enter a more Disciplined Phase
Significant Risk Transfer (SRT) has evolved from a niche regulatory tool into a dynamic market exceeding €1 trillion in underlying assets, serving as a vital strategy for banks to optimize capital and maintain lending capacity. Primarily executed through synthetic securitizations, the market has seen rapid growth, with issuance increasing nearly fivefold since 2016 according to the BIS. By the end of 2024, SRT transactions referenced approximately €800 billion in underlying loan portfolios, supported by €72 billion of risk transfer. This momentum is expected to continue through 2026, driven by stricter regulatory requirements and the increasing necessity for banks to manage balance sheet pressure efficiently.

Data from Oxane Panorama, which tracks over €280 billion in protected portfolios, reveals a notable shift in credit risk concentration toward moderate-risk segments. In 2022, the market was heavily skewed toward high-quality assets, with nearly 80% of entities sitting in the lowest probability of default (PD) bucket of 0%–0.5%. However, by early 2026, this concentration dropped to the mid-60% range, while the 0.5%–5% PD bucket grew to nearly 35%. Sector-specific data highlights this trend clearly; while IT and Technology remained stable, sectors like Real Estate saw default probabilities climb sharply from 1% to nearly 4%, and the Agriculture and Food sectors experienced similar risk elevations without corresponding changes in Loss Given Default (LGD) assumptions.

Despite this upward migration in underlying risk, investor returns have come under significant pressure due to tightening tranche margins. Between 2023 and early 2026, margins for first loss and mezzanine protections compressed by nearly 3%, a trend driven more by aggressive competition and demand-supply mechanics than by risk-return fundamentals. Nevertheless, investor appetite remains resilient, bolstered by the structural appeal of the asset class and its ability to provide access to diversified bank-originated credit.

Moving forward, the SRT market is entering a phase of maturity where growth will be defined by increased discipline, standardization, and heightened regulatory scrutiny rather than volume alone.

Operating Discipline Becomes a Strategic Differentiator
As private credit expands across sectors, asset classes and investor channels, the operating demands on managers are increasing. Oxane’s Private Credit+ Compass 2026 recently found that 60% of private credit funds identify risk management and valuations as their leading operational challenge, highlighting the growing importance of stronger governance, data and oversight.

As borrower performance becomes increasingly uneven, investors are placing greater emphasis on the processes behind valuation and risk management decisions. Managers are strengthening valuation governance frameworks, enhancing documentation standards and increasing oversight around assumptions used in portfolio marks. The objective is not simply to produce valuations more frequently, but to ensure they remain consistent, defensible and repeatable across increasingly diverse portfolios.

At the same time, portfolio monitoring requirements continue to expand. Managers increasingly need borrower-level visibility into operating performance, liquidity trends, covenant headroom, refinancing exposure and collateral performance across multiple strategies and asset classes. Strong analytics and connected data are therefore becoming central to how firms identify emerging risks, assess portfolio vulnerabilities and support investment and valuation decisions.

In a market characterised by growing dispersion, managers can no longer rely on broad sector trends to assess risk. Instead, the ability to identify potential performance deterioration early, explain portfolio outcomes clearly and support valuation decisions with robust underlying data is becoming a critical component of investor confidence and manager differentiation.

Looking Ahead to H2 2026
The second half of 2026 is likely to extend many of the themes that shaped the first. Performance divergence across borrowers and sectors is expected to remain elevated, valuation scrutiny will continue to rise, and capital demand across AI infrastructure, digital assets and asset-based finance is likely to remain strong.

Investor focus will increasingly shift towards how managers navigate this environment. The market is increasingly rewarding firms that combine underwriting discipline with strong governance, valuation rigor and portfolio transparency.

Private credit's next phase of growth will therefore be defined less by scale of capital deployed and more by the quality of execution behind it. That will require connected infrastructure, reliable data and operating discipline that can support growth while giving managers the visibility and control to respond as market conditions change.

H1 2026 showed that the asset class remains resilient under greater scrutiny. The task for the remainder of the year will be to preserve that discipline while continuing to capture opportunities across an increasingly diverse market.