Why private credit's headlines miss the fundamentals that matter most

The private credit industry has become a media darling, but not always for the right reasons. At SuperReturn International 2026, Tim Lower, CEO and CIO of Willow Tree Credit Partners, argued that sensational headlines about redemptions and distress are obscuring what matters most: disciplined investing and consistent performance through cycles.

After 25 years in what he calls "a very boring industry," Lower sees opportunity precisely where others see crisis. While the largest managers navigate retail redemptions and software exposure, core middle market lenders with discipline and focus are finding less competition and better terms.

Key takeaways

• Private credit remains a $1.7 trillion asset class delivering positive returns through multiple crises, including the GFC, COVID, rate hikes and geopolitical disruption.
• Redemption issues affecting headline-grabbing managers are largely confined to retail products, not the institutional market that still dominates the industry.
• The largest managers have migrated to the upper middle market, leaving core middle market lending less competitive and creating deployment opportunities.
• Willow Tree maintains just 1% software exposure versus 30-45% for index-style managers, avoiding widespread payment-in-kind situations.
• The firm focuses on sectors with structural inertia: wealth management, insurance distribution, aerospace and defense, and healthcare.
• Workout dynamics favor smaller companies, where a $50 million EBITDA business has hundreds of potential buyers versus just 3-4 for billion-dollar companies.

The noise versus the fundamentals

Lower draws a sharp distinction between what dominates financial media and what institutional investors actually experience. Redemption pressures at large retail-focused managers have generated headlines positioning private credit as "the new subprime." Lower finds this characterization absurd for an asset class that has delivered consistent positive returns for a quarter century.

This is a very boring industry that I've been in for 25 years. It should not be the number 2 story behind Iran and in front of anthropic AI.

Tim Lower, CEO and CIO, Willow Tree Credit Partners

The redemption issues are real, but they affect a specific segment: the largest managers of retail money. For firms like Willow Tree that focus on institutional capital, these outflows are largely irrelevant to day-to-day operations. What they do create, however, is opportunity. Asset spreads are widening, leverage is coming down, and the largest managers are distracted by managing outflows rather than competing aggressively for deals.

Why scale became a distraction

The growth of private credit to $1.7 trillion has been driven by two factors. First, institutional investors recognized the asset class's ability to generate high coupon income with strong recovery rates, performing like or better than junk debt but with greater stability. Second, the wealth and retirement markets increasingly need income solutions, a trend Lower expects to continue.

But that growth created its own problems. The largest managers, capturing 90% of flows, have migrated steadily upmarket. Financings that once topped out at hundreds of millions now regularly reach $1 billion, $4 billion, even $5 billion. Apollo and Blackstone recently announced a $35 billion financing.

Most managers are really trying to clear away some of the clouds that have been brought forth by the media.

Tim Lower, CEO and CIO, Willow Tree Credit Partners

This migration left a gap. Core middle market lending, once crowded, has become less competitive as managers either moved upmarket or were acquired. Lower points to approximately $500 billion in M&A activity among lenders, including major combinations like HPS and BlackRock as well as smaller acquisitions. Each merger brings disruption: turnover, new investment committees, pressure to move upmarket.

For a firm like Willow Tree, with $6 billion in assets and a commitment to the core middle market, the macro environment matters less than it might for larger players. There are simply more opportunities to deploy capital on attractive terms.

The software problem nobody wants to discuss

Lower's most pointed criticism targets the industry's software exposure. Software and tech represent 30-45% of LBO volumes, and the largest managers, acting as index players, have built portfolios with similar concentrations. Willow Tree's software exposure sits at approximately 1%.

That decision, made four or five years ago, reflected concerns about leverage levels, quality of earnings, and whether borrowers could cover interest obligations. Lower's thesis has played out: many portfolios have gone payment-in-kind, meaning borrowers are not generating sufficient free cash flow to pay interest in cash. A lot of portfolios, whole portfolios have gone PIK, so non-cash pay. The core issue is leverage.

An 8 times leveraged borrower, which is what this sector lends to, does not cover interest. It provides really no margin of safety. If there's modest underperformance, you're going to see defaults.

Tim Lower, CEO and CIO, Willow Tree Credit Partners

Now a refinancing cliff is approaching. Lower believes diversification away from this concentration is essential.

Whether or not you think agentic AI is disrupting and going to destroy all enterprise software in the next 4 or 5 years or not, you should be looking to diversify away from this risk and we represent a great opportunity to do that.

Tim Lower, CEO and CIO, Willow Tree Credit Partners

Where discipline creates opportunity

Willow Tree's sector focus reflects a different philosophy. The firm underwrites AI disruption across the entire portfolio, recognizing that automation threatens any function currently performed by humans. But some businesses face that risk more acutely than others.

Lower prefers cost centers of Fortune 500 businesses: vendors and outsource providers that can be replaced, but where decisions involve inertia and diversification. Change happens more slowly when a business serves hundreds or thousands of customers rather than depending on a handful of large contracts.

Specific overweights include:

• Wealth management: Clients rely on advisors for more than investment advice, creating relationship stickiness.
• Insurance and insurance distribution: Structural complexity and regulatory requirements create barriers to rapid disruption.
• Aerospace and defense: Long-term contracts and specialized capabilities limit substitution risk.
• Healthcare: Regulatory requirements and specialized knowledge create defensibility.

Beyond these sectors, the portfolio remains diversified. The strategy is not about picking winners. It is about avoiding concentrated exposure to sectors where deterioration can happen quickly and leverage leaves no room for error.

Why smaller is actually better

The conventional wisdom in private credit holds that scale matters and bigger is better. Lower disagrees, particularly when leverage is factored in.

If you blindfolded me and told me nothing about a business other than it had a billion dollars of cash flow versus $50 million of cash flow, I would pick the billion dollar company. But when you look at how much debt these large businesses are taking on in the form of that debt, I would change my opinion.

Tim Lower, CEO and CIO, Willow Tree Credit Partners

Capital structures carry too much leverage. Documentation contains holes that become apparent only in bankruptcy, when IP or subsidiaries leave the structure through liability management exercises. These issues have played out publicly, but Lower believes the workout picture for large businesses will prove even more challenging.

A billion-dollar company that deteriorates to $500 million in EBITDA carries 10 turns of leverage and has virtually no buyers. Perhaps three or four private equity groups could assemble a bid. A corporate acquisition would require lengthy regulatory approval and an expensive bankruptcy process.

Contrast that with a $50 million EBITDA company that declines to $25 million. Management can cut costs, remove functional overhead, and bring the business to cash flow neutrality. Critically, there are hundreds of potential buyers for a business of that size. The workout dynamics are fundamentally different.

This is why investors historically favored middle market credit: the ability to manage through stress and find exits. Lower believes those dynamics will show up in returns as the current cycle plays out.

The discipline of underwriting the downside

Every investment at Willow Tree begins with a downside scenario. The firm does not get paid more when a business beats its plan and gets refinanced ahead of schedule. Value is created by understanding what brings a business to payment default, how much corporate overhead can be cut, and who the buyer would be.

Where we really drive value for investors is looking at what brings this business to payment default.

Tim Lower, CEO and CIO, Willow Tree Credit Partners

Private equity will not rescue a business in impairment. The lender must have a plan to operate the company and a realistic view of exit options. That analysis is far easier for a $20-30 million business than for a $300-500 million business. The pool of potential buyers who can digest the full value of the debt is simply larger in the core middle market.

This discipline extends to every stage of underwriting. Lower describes it as scrutinizing not just the investment, but preempting the exit before even considering the opportunity. That approach may limit deployment speed, but it protects returns through cycles.

Why the mood at SuperReturn matters

Lower noticed something at SuperReturn International 2026. The event draws 7,000 industry participants and grows each year. Conversations with institutional investors revealed continued directional support for direct lending and private credit. The asset class provides solutions investors need, particularly as another potential rate hiking environment and strong inflation loom.

But there is a gap between what institutional investors understand and what headlines suggest. Investors who have been in the asset class for years recognize what it does: produce positive returns consistently. That track record spans the global financial crisis, COVID, rate hikes, and geopolitical risk.

The boring industry that keeps performing

After 25 years, Lower remains committed to what he calls a boring industry. Private credit should not generate the headlines it does. But for institutional investors seeking income, stability, and consistent performance through cycles, the asset class continues to deliver.

The current environment, with its redemption pressures and software exposure challenges, is not a crisis for the industry. It is a sorting mechanism. Managers who maintained discipline, avoided concentration risk, and focused on the core middle market are finding better opportunities and less competition.

For Willow Tree, with its 1% software exposure, focus on sectors with structural defensibility, and commitment to underwriting downside scenarios, the macro noise is largely irrelevant. The fundamentals remain strong, the opportunity set is expanding, and the 25-year track record of positive returns continues.

In an industry that has become anything but boring in the headlines, that consistency may be the most valuable quality of all.