- What specific risk are we being paid for: liquidity, duration, complexity, or true credit risk?
- Where do we sit in the capital stack, and what is our attachment point?
- How does this borrower actually make money, and how resilient is that model under stress?
- What breaks the deal, and what happens next?
- How does this investment behave as part of the broader portfolio, not just in isolation?
Heading into 2026, many family offices are asking a sharper version of a familiar question: should private credit play a larger role in the portfolio, or are we at risk of over-allocating to what has become the latest “safer yield” narrative?
The question matters because the backdrop has shifted. Liquidity is no longer abundant, refinancing risk is rising, and underwriting discipline has once again become the true differentiator. At the same time, families are seeking durable income, capital preservation, and resilience rather than relying on valuation multiple expansion. In that environment, private credit understandably draws attention.
A balanced answer, however, is rarely a simple yes or no. The more useful framing is this: private credit can make sense in 2026 only when a family office can clearly identify what risk it is being paid to bear, how returns are generated at the borrower level, and how capital is protected if assumptions break.
Private credit is large, legitimate, and increasingly crowded
Private credit is no longer a niche strategy. According to the Alternative Credit Council’s 2025 Financing the Economy report, global private credit assets under management have reached approximately $3.5 trillion, with capital deployment hitting a record $592.8 billion in 2024. The United States remains the largest market, but Europe is growing rapidly, and capital is flowing across corporate lending, asset-backed strategies, infrastructure debt, and real estate credit.
This scale underscores private credit’s importance as a source of non-bank financing and as a core allocation for institutional and family capital. Growth alone is not a warning sign. But growth combined with competition, compressed spreads, and broader participation – including increasing retail access – raises the bar for diligence. As capital floods in, weaker structures tend to appear quietly, not all at once (in my prior life as a lender, we used to label this as ‘deal creep’).
Where private credit can make sense in 2026
At its best, private credit offers clarity. Seniority in the capital stack, contractual cash flows, and defined remedies can provide a cleaner line of sight to downside outcomes than common equity. For families prioritizing income and capital preservation, senior secured positions with conservative leverage and realistic refinance assumptions can play a constructive role.
That said, income is not guaranteed simply because it is contractual. The durability of cash flow depends on the underlying business: how revenue is generated, how cyclical it is, how operating costs behave under stress, and whether management has room to adjust when conditions tighten. Collateral and covenants matter, but they are secondary to the borrower’s ability to service debt through the cycle.
For families investing through private credit funds, the same logic applies one level up. The lender’s underwriting discipline, portfolio construction, monitoring practices, and workout experience are just as important as the headline yield. In credit, returns are earned through risk management, not optimism.
The risks that are often underestimated
One of the most common misconceptions about private credit is that lower reported volatility implies lower risk. In reality, private valuations are not continuously marked, which can smooth returns and delay the recognition of stress. This is not inherently problematic, but it can mask emerging issues and create a false sense of stability if governance processes are weak.
Manager dispersion also matters more than the asset class label. Two private credit managers pursuing similar strategies can produce vastly different outcomes based on credit selection, documentation standards, concentration limits, use of leverage, and their willingness to enforce covenants. In other words, the manager – and the borrower – are the real macro.
Howard Marks has often observed that periods of benign conditions tend to lower standards, not because participants are reckless, but because risk feels distant. Recent isolated defaults and fraud cases in private credit are not evidence of a systemic failure. They are reminders that credit risk never disappears and that skill and vigilance matter most when they appear least necessary.
Liquidity is a governance issue, not a deal issue
For family offices, the most acute stress rarely comes from a paper loss. It comes from timing mismatches: capital calls arriving as distributions slow, maturities extending when liquidity is needed elsewhere, or operating businesses requiring capital at inopportune moments.
This is why private credit allocations should be owned by the Investment Committee and tied explicitly to a liquidity policy. Decisions made deal by deal, without regard to portfolio-level duration, concentration, and cash needs, can unintentionally introduce fragility. Yield optimization should follow liquidity planning, not precede it.
What changes in 2026
Looking ahead, the dominant risk is not headline yield but refinance risk. Loans originated in a different rate environment will need to be refinanced under tighter conditions, and assumptions that once felt conservative may no longer hold. Seniority, realistic leverage, and credible take-out scenarios become non-negotiable.
It is also worth acknowledging that private markets already represent a meaningful portion of many family office portfolios. In that context, the 2026 decision is often about rebalancing within private investments rather than simply adding exposure. In some cases, the most disciplined move may be to do less, but do it better.
A practical framework for Investment Committees
Before increasing private credit exposure, Investment Committees may benefit from asking a few fundamental questions: