Private credit is a source of income and diversification in an uncertain world and a high inflation environment could make it more attractive, according to Invesco.
In its mid-year outlook for 2026, the investment firm said that despite the underlying risks and liquidity constraints that come with investing in private markets, the fundamentals are “generally healthy” and the vehicles are operating “as expected”, with calculations suggesting a “relatively attractive risk-reward trade-off on direct lending investments”.
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The firm added that the performance of senior secured loan indices has been better than comparable global indices for public debt markets since the war in Iran began, while AAA-rated collateralised loan obligations (CLOs) have outperformed cash and publicly-quoted fixed income assets.
“Looking ahead, we note that the yield on bank loans and CLOs remain above historical norms, which cannot be said for public credit and government markets. In our view, that makes them a source of low volatility income, which can be useful in an uncertain world, especially if inflation and long-term yields rise further,” Invesco said. “We believe the same applies to the higher quality segments of direct lending.”
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