The resilience and origination potential of the upper middle market makes it a preferred segment for private credit investments, according to UBS Asset Management head of private credit Kevin Lawi.

Lawi said “opportunities abound in larger sponsor owned businesses with established track records and growth prospects”, despite a slowdown in the market.

He said UBS prefers to invest with larger businesses because they are less susceptible to “macroeconomic and idiosyncratic risks”, while offering more potential for origination and realisation opportunities.

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Lawi’s comments come amid a recovery in the broadly syndicated loan market, which has heightened competition in the upper middle market for attractive deals.

“Both markets are open for business with the syndicated markets recently regaining share that was ceded to private credit during 2022 and 2023,” he said. “The theme that continues however is the convergence between the syndicated and private credit markets as we see deals shift fluidly between the two markets.”

Meanwhile, there has been a resurgence in junior capital deals, he said, with an increasing number of take-privates and more refinancing of capital structures with near-term maturities.

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While banks are once again competing with private credit funds for larger deals, the flexibility of private credit offers a benefit over syndicated markets, he said.

“We see private credit as resilient amid changing dynamics,” he added.

While interest rates have affected investor sentiment and timelines, Lawi observes that any increased risks are commensurately rewarded in private credit.

“Default rates have increased alongside the increase in base rates, but so have returns in the asset class,” he said. “While the environment has become riskier, investors are getting paid more to bear these risks. This environment will test credit managers, and it is critical to focus on credit selection when navigating these interest rate fluctuations.”

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