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.

Companies are willing to pay a 150-200 basis point premium for private credit to gain a strategic partner who provides bespoke financing, governance, and expertise for complex needs like carve-outs. This partnership value proposition distinguishes it from transactional public markets.

The classic distressed debt strategy is broken. Market dislocation windows are now incredibly narrow, often lasting just days. Furthermore, low interest rates for the past decade eliminated the ability to earn meaningful carry on discounted debt. This has forced distressed funds to rebrand as 'capital solutions' and focus on private, structured deals.

Oaktree's co-CEO highlights a critical flaw in applying venture logic to debt. In a diversified equity portfolio, one huge winner can offset many failures. In a diversified debt portfolio, the winner only pays its coupon, which is grossly insufficient to cover the principal losses from the losers.

Recent "canary in the coal mine" cases like First Brands, often blamed on private markets, were not PE-owned and were primarily financed in liquid markets. In fact, it was private credit firms pushing for deeper diligence that exposed the issues, strengthening the argument that private credit offers a safer way to access the asset class.

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.

While fears of retail investors gambling on venture capital exist, the primary growth in retail alternatives is in yield-oriented strategies like private credit and infrastructure. These products meet the demand for high current income and lower volatility, especially for those in or near retirement, making them a more logical first step.

Investors often incorrectly lump all Asian credit into a high-risk bucket associated with emerging markets or distressed property. This misperception creates undervalued opportunities in high-quality liquid markets, such as Japanese financials, which offer relative value without significant incremental risk.

A credit investor's true edge lies not in understanding a company's operations, but in mastering the right-hand side of the balance sheet. This includes legal structures, credit agreements, and bankruptcy processes. Private equity investors, who are owners, will always have superior knowledge of the business itself (the left-hand side).