The Paper Trail: Stepping Into the Spotlight

One of the defining investment stories of 2026 has been private credit's foray into the spotlight.

Not because of a surge in credit losses or collapsing performance, but because the financial media anointed it the "main character" of markets. Every borrower default now gets labeled a canary or a cockroach by the mainstream press, while every interval fund or BDC repurchase window is greeted with bated breath by the social media peanut gallery as if it were earnings season. The same talking points get recycled quarter after quarter. Copy. Paste. Rinse. Repeat. Nuance be damned.

Scrutiny is healthy. It comes with the territory when an asset class reaches this size. The problem is that much of the commentary has blurred the distinction between liquidity and credit. A prorated repurchase tells you that investor demand for liquidity exceeded the amount a fund offered to repurchase during a given window. By itself, it says very little about the performance of the underlying loan portfolio.

Meanwhile, the actual scorecard tells a different story. While yields/returns have moderated from the exceptional levels produced by higher base rates and wider spreads in 2022-23, many of the industry's largest private credit funds have continued to outperform investment-grade bonds, high yield bonds, and broadly syndicated loans this year while continuing to deliver the steady income investors have come to expect from the asset class.

Hardly the stuff of financial catastrophe, but don't tell that to loudest critics whose skepticism cynicism has morphed into a personality trait. While The Substackers Who Cried Wolf continue to encourage short-termism and market timing, long-term investors are learning to tune out the fearmongering as each predicted reckoning quietly fails to arrive.

Fortunately, high-quality investment research has a way of separating signal from noise. Before we all unplug for the holiday weekend, here's one last batch of the good stuff to add to your summer reading list. Whether you're by the pool, at the beach, or wherever the Fourth takes you, I hope you find something worthwhile. Topics featured in June's edition of The Paper Trail include:

• Public and private credit convergence
• Direct lending characteristics across vintage years
• Core plus real estate 
• Avoiding value traps in emerging markets
• Catastrophe bonds as a diversifier 
• An overview of specialty credit
• Lifting the veil on tail risk strategies
• Credit secondaries at an inflection point
• The present value of growth opportunities (PVGO) in stocks
• Volatility as a structural feature of markets
• Quantifying the historical tax drag on U.S. equity returns
• Reflections on cross-asset drawdowns
• Private equity's challenging distribution environment
• Liquidity terms across evergreen fund types
• Private capital's role in infrastructure investing

Should public and private credit be evaluated on one continuum?

"From a liquidity perspective, we believe that it is neither binary nor static. Indeed, some public securities, particularly older, tightly held issues, may not trade for prolonged periods of time and will be relatively illiquid when compared to recently issued, on-the-run, large CUSIP bonds. Conversely, many private credit assets are self-liquidating, generating cash flows through coupons, amortization, prepayments, and maturities."

Beyond Convergence (PGIM)

How have interest coverage ratios for private credit borrowers changed in recent years?

"Rising base rates in 2022 and 2023 meant an increasing number of borrowers fell into the lower coverage ratio bracket, as their cost of debt service went up. Since then, the combination of both moderating rates and EBITDA growth has resulted in more borrowers moving back to the medium and high coverage bucket. In the most recent look-through period, 76% of borrowers had coverage ratios north of 1.5 times."

Perspectives on Private Credit Risk, Part 2 (Aksia)

What actually puts the “plus” in core plus real estate?

"Core plus sits between core and value-add on the risk/return spectrum, distinguished from core primarily by higher leverage, along with potentially more capital-intensive business plans, modest leasing risk, and niche sector exposure."

 
Core Plus Real Estate Primer (Meketa)

How can emerging market investors avoid value traps?

"But buying cheap exposure is not enough to navigate the EM opportunity. By using Quality and Momentum screens to avoid value traps and falling knives, investors can improve the Sharpe ratio of the cheapest quintile of EM stocks, from 0.23 to 0.31, and boost annualized returns from 7.6% to 9.0%. As globalization winds down, these fundamental guideposts may be the most reliable instruments for charting the route to future EM alpha."

Guided by Fundamentals: Navigating Emerging Markets with Value (Research Affiliates)

Can cat bonds offer true diversification when traditional markets are under stress?

"Beyond the attractive spreads on offer, cat bonds have historically delivered returns that are fundamentally uncorrelated to traditional financial markets, a quality that has been highlighted by recent global macro events."

Catastrophe Bonds: An Uncorrelated Asset Class Amid Global Macroeconomic Uncertainty (Neuberger)

What makes specialty credit different from traditional direct lending?

"Specialty credit investing therefore places greater emphasis on collateral quality, cash flow durability, structural protections, servicing capabilities, and the legal framework supporting the assets. This differs from direct lending, where underwriting focuses on a company’s earnings and ability to generate future operating cash flows."

Introduction to Specialty Credit (StepStone)

Are investors evaluating tail hedges with the wrong scorecard?

"The more dominant the attackers and midfielders become over stretches of time (i.e., periods of tremendous equity strength), the less useful the defenders and goalie seem to the objective of winning the game. The knowledgeable observer of the game understands that eventually every great offense needs defensive tools, even if just to push the ball back up the field to the goal-scoring players (rebalance convexity proceeds into equities)."

Lifting the Veil on Tail (One River Asset Management)

Is the credit secondary market reaching an inflection point?

"Beginning in the early 2020s, and accelerating meaningfully through 2022 and 2023, the credit secondary market has evolved into a highly functional and increasingly institutionalized segment of private markets. Despite this maturation, we estimate that only $20 billion of credit fund exposures traded in 2025, implying a fund turnover rate of approximately 1%, which is well below the 2–3% typically observed in private equity secondaries and more in line with turnover rates in private equity in the early 2010s. This gap highlights the early-stage nature of market penetration and suggests substantial headroom for growth"

Credit Secondaries: Stepping into the Spotlight (Carlyle AlpInvest)

What are investors actually paying for when they buy a growth stock?

"The present value of growth opportunities (PVGO) is the difference between a company's stock price and the value of its current business assuming no future value-creating investments. It isolates what investors are paying today for expected future growth."

Opportunities and Expectations: The Present Value of Growth Opportunities in Valuation (Counterpoint Global)

Have investors become too dependent on policy rescues?

"The trade, broadly speaking, is not to assume disaster. It is to stop assuming rescue. It is to stop treating volatility as a policy mistake that will always be corrected and start treating it as a feature of the new environment. That means caring more about valuation, cash flow timing, liquidity, inflation sensitivity, and whether the hedge is really a hedge. It means recognizing that many portfolios that look diversified by asset class may actually be concentrated in one underlying exposure: the assumption that risk will remain underpriced."

From Suppressed to Structural: The Return of Volatility (Graham Capital Management)

How much of long-term equity wealth does Uncle Sam keep?

"Uncle Sam's cut from US equity returns is large, variable, and driven primarily by the tax treatment of dividends. Over the modern 1996-2025 period, Federal taxes reduce terminal wealth by about 36.5%, equivalent to an annualized drag of 165 bps. The tax drag over the past 30 years is mild compared to the tax drag over the last 100 years. Across eight overlapping 30-year windows starting at different decades from 1926 and ending at 2025, the average Federal tax drag is 347 bps, and the worst window—1936-1965, when top dividend rates reached 90%—has a tax drag of 538 bps."

Uncle Sam’s Cut: A Century of the Federal Tax Drag on US Equity Returns (Andrew Ang)

Which asset combinations work best in managing drawdown risk?

"Pairing assets thoughtfully could make the difference between a portfolio that
diversifies and one that compounds its own pain"

Don’t Look Down: Reflections on Cross-Asset Drawdowns (Man Group)

Why are private equity distributions still stuck in low gear?

"Exits have been dragged down by the same market uncertainty that is plaguing investments. That’s not to say the market isn’t still clearing selectively. High quality assets with strong strategic value continue to attract buyers, and a second tier of assets can still transact, but often only if sellers are willing to bend on valuations or pursue structured liquidity solutions like continuation vehicles."

Control the Controllable, Weather the Rest: Private Equity Midyear Report 2026 (Bain & Company)

How do liquidity terms vary across evergreen funds?

"Most semiliquid funds offer quarterly liquidity, but the details vary. Tender-offer funds, unlisted BDCs, and REITs can reduce or suspend redemptions at their discretion. Interval funds are the exception: They must honor their stated redemption terms unless shareholders vote to change them, though managers have flexibility in setting those terms upfront. How much investors can redeem in a period also varies. Interval funds must offer to repurchase at least 5% of shares in each repurchase window. Other semiliquid structures can vary their amounts, but most target 5% quarterly. Liquidity terms should match asset liquidity, and greater liquidity offers in private equity or venture capital could be a challenge."

The State of Semiliquid Funds 2026 (Morningstar)

Why has private capital become so integral to infrastructure investing?

"Historically, governments were strong supporters of infrastructure, whether through policy or direct budgetary funding that drove the build-out of new projects. However, in the years following the Global Financial Crisis, many government budgets retrenched, leaving less funding available to support a growing demand for infrastructure projects. As a result, a gap has emerged over the past 15 years between the need for new infrastructure and the availability of capital to build it. An estimated $106 trillion in global infrastructure spending will be required through 2035, and it has increasingly fallen to the private (non-government) sector to build out future projects."

A Comprehensive Guide to Private Infrastructure (Ares)