The term "middle market" is too broad for risk assessment. KKR's analysis indicates that default risk and performance dispersion are not uniform. Instead, they will be most pronounced in the lower, smaller end of the middle market, while the larger companies in the upper-middle market remain more resilient.

The European middle-market's preference for sole-lender deals contrasts with the syndicated US market. This allows lenders to design their own tight credit agreements, preventing value leakage and prioritizing downside protection—the most critical factor for a capped-return loan product.

Private credit generates a 200 basis point excess spread over public markets by eliminating intermediaries. This 'farm-to-table' model connects investor capital directly to borrowers, providing customized solutions while capturing value that would otherwise be lost to syndication fees.

Private credit allows investors to act like chefs—deeply involved from ingredient sourcing (diligence) to final creation (structuring). Liquid market investors are like food critics, limited to analyzing the finished product with restricted access to information, which increases risk.

While the US private credit market is saturated, Europe's middle-market offers higher spreads (north of 600 basis points) and lower leverage. This opportunity is most pronounced in non-sponsor deals, a segment where large banks and public markets are less active, creating a lucrative niche.

A major segment of private credit isn't for LBOs, but large-scale financing for investment-grade companies against hard assets like data centers, pipelines, and aircraft. These customized, multi-billion dollar deals are often too complex or bespoke for public bond markets, creating a niche for direct lenders.

Corporations are increasingly shifting from asset-heavy to capital-light models, often through complex transactions like sale-leasebacks. This strategic trend creates bespoke financing needs that are better served by the flexible solutions of private credit providers than by rigid public markets.

For the sophisticated custom target-date funds that will be early adopters, private credit is the easiest first step. Unlike private equity, some private credit products can already be marked daily. This operational readiness, combined with liquidity from distributions, makes it the path of least resistance.

The two credit markets are converging, creating a symbiotic relationship beneficial to both borrowers and investors. Instead of competing, they serve different needs, and savvy investors should combine them opportunistically rather than pitting them against each other.