Commodity Watch: Beyond the US Private Credit Plateau

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/061c994a-a452-418f-bfa0-f2cf3cf5c577/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.png?language=en" alt="Ahmad Al Sati - insights" title="Ahmad Al Sati - insights" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and Portfolio Manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>Asset classes mature. They change. They morph. And they pivot. Yet their benefits to a portfolio may not necessarily decrease. Rather, their role and form might evolve. Private credit might be going through such a transformation.</p><p>After galloping to around $1.7 trillion (from $40 billion in 2000) traditional US private credit funds might be facing headwinds. Redemptions were up 2x in the fourth quarter of 2025 relative to the previous period- some tech focused funds saw their redemption rate increase by over six times. The redemption notices in the quarter focused on non-traded Business Development Companies (BDCs) and US private credit funds. The money is not flowing in as fast either. Fund investors allocated less capital to US focused private credit funds in the first nine months of 2025 relative to the prior period. During that time, US focused funds accounted for 28% of all capital raised (down from near 50% in 2024) while European and multi-regional funds increased their share to 37% and 35% respectively.</p><p>The decreased appetite for US focused funds comes following high profile bankruptcies (with a Debtor-in-Possession (DIP) loan loss to boot, which almost never happens). Although headline default remains at 2%, actual default is likely closer to 5% if you include liability management (and why wouldn’t you?). At the same time 40% of private credit borrowers have negative cash flows. That could explain the rise in Payment-in-Kind (PIK). PIK interest for BDCs rose to 8% of total investment income, up from 5% in 2020 (per With Intelligence and Gemcorp’s <a href="/insight/beyond-the-comfort-zone-emerging-markets-in-the-private-credit-2-0-era" data-channel-guid="bf0f72af-7483-48d9-90ec-b2f04a7cd593">Beyond the Comfort Zone</a>). In <a href="/insight/beyond-the-comfort-zone-emerging-markets-in-the-private-credit-2-0-era" data-channel-guid="bf0f72af-7483-48d9-90ec-b2f04a7cd593">Beyond the Comfort Zone</a>, Gemcorp’s Felipe Berliner also highlights other issues with existing private credit including increasingly compressed yields.</p><p>The benefits of private credit to portfolios are manifold. For example, private credit provides investors with downside protection, diversification benefits and income. Yet, oversupply of capital into the existing funds is eroding protections and benefits. Bloomberg reported that private lenders are loosening covenants to compete in the PE market with loans increasingly becoming cov-lite. US private credit is also increasingly exposed to AI, which is the primary source of capex in the US (per Apollo, almost all capex increase in the US is AI driven). So much for diversification. Finally, increased PIK and reliance on NAV accretion for returns means lower cash generation and dividends.</p><p>The world, however, is large and varied. And the need for capital outside US private credit remains substantial. Diversification across strategies and geographies may thus become more important as US private credit plateaus. Allocators are already looking at Europe. Emerging markets (representing over 50% of global Gross Domestic Product) might also be worth a look. Asset-based lending, short duration credit and commodity credit remain underrepresented in portfolios relative to their large addressable markets. Ultimately, disciplined and focused credit underwriting remains the most important differentiator. But good underwriting exists across multiple credit segments and to find it, allocators just have to look.</p>