Cracks are emerging in US private credit as defaults and payment-in-kind (PIK) usage rise, while emerging markets private debt is offering stronger protections and higher yields, according to Ninety One.
In the US, high-profile bankruptcies, a credit default rate of 9.2 per cent for the 12 months to January 2026, and the increased use of PIK structures are beginning to appear as the market becomes more crowded. At the same time, the $3tn (£2.3tn) private credit market is facing headwinds due to its exposure to artificial intelligence (AI) disruption, which is concentrated in software-as-a-service companies.
In contrast, emerging markets private debt remains relatively uncrowded and is dominated by asset-heavy, cashflow-generative borrowers, the £159.8bn global investment manager said.
In emerging markets, lending standards remain high, with lenders able to stipulate collateral protections and strong covenants. Deals are often conducted in collaboration with banks, and stronger bargaining power allows lenders to take a more conservative approach to underwriting, Ninety One said.
“Unsecured term lending in emerging markets is rare, and borrowers tend to have much lower leverage, – typically 3-4x, compared to 6-7x in developed markets – and lower loan-to-value ratios – typically sub-40 per cent, compared to 50-60 per cent in developed markets – alongside durable market positions,” said Alper Kilic, head of alternative credit at Ninety One.
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Furthermore, the opportunity set has limited exposure to sectors most vulnerable to AI disruption, Ninety One said.
The manager also highlighted where the premium sits in the capital structure. In US direct lending, achieving attractive yields often requires accepting structural subordination or levering a fund vehicle. In emerging markets, the premium is available at the senior and senior-secured level, reflecting origination complexity and lender bargaining power. Investors are compensated for expertise and access, rather than for taking on additional credit risk.
“The yield pick-up in emerging markets is significant, despite strong borrower fundamentals,” said Matt Christ, portfolio manager, emerging market transition debt. “For example, one of our US dollar-based loans, to fund an ambitious electric vehicle expansion programme in a Turkish city, provides 200bps more yield than the public bond issuance from the same municipal issuer.”
Ninety One also said the need for private credit is rising in emerging markets, due to the increasing demand for utilities, goods and services fuels financing requirements.
“Expanding infrastructure requirements are creating an abundant deal pipeline,” said Martijn Proos, co-head of emerging market alternative debt. “And by directing capital towards essential transport, energy, water, urban infrastructure and digital communication infrastructure, investors also contribute to social& economic development and environmental sustainability.”
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