Income has returned to the center of portfolio construction. Yet the ways investors generate it have changed. Traditional portfolio frameworks, including the long-standing 60/40 model, have struggled to deliver the “40” allocation with the consistency investors once expected. Public fixed income, once seen as predictable, has become more sensitive to interest rate shifts, inflation concerns, and policy uncertainty. Yields may appear attractive at times, but price volatility and duration risk have made outcomes less stable.
Against this backdrop, private credit has moved from the sidelines into a central role. What was once considered a niche allocation is now a key source of financing for the real economy. For investors looking ahead to 2026, private credit is no longer just an income strategy. It reflects a deeper change in how companies are funded.
At The Family Office, we see this as a structural shift rather than a short-term response to market conditions.
The Retreat of Traditional Banks
For many years, banks were the main providers of loans to mid-sized companies. That role has gradually changed.
Since the global financial crisis, banks have faced stricter capital rules and higher regulatory requirements. While these changes strengthened the banking system, they also reduced banks’ appetite for certain types of corporate lending, particularly in the middle market where loans tend to be less standardized and more balance-sheet intensive.[2]
As a result, many healthy businesses have found it more difficult to secure financing through traditional banking channels.
Private credit has stepped in to fill this gap. Rather than competing directly with banks, private lenders have taken over areas banks are no longer focused on, offering tailored financing to companies that value certainty of execution, speed, and long-term partnership.
This is not a temporary development. As regulatory constraints remain in place, private lenders are becoming a permanent part of the corporate financing landscape.
Yield with Structural Protection
One reason private credit has gained traction is the way income is generated and protected. Most private credit strategies focus on senior secured loans. These sit at the top of a company’s capital structure and are backed by collateral, placing lenders first in line for repayment if a borrower encounters financial difficulty.
Many of these loans are also floating rate. This means income adjusts as interest rates change, helping reduce sensitivity to rate volatility. As interest rates are expected to decline modestly from recent levels, private credit continues to benefit from an embedded illiquidity premium, with contractual coupons that remain attractive relative to public fixed income markets.
According to Morgan Stanley, global private credit assets under management exceeded $3 trillion in 2024, up from around $1 trillion a decade earlier, and are expected to continue growing in the years ahead.[3]
The combination of seniority, security, and floating-rate income has positioned private credit as an attractive option for investors seeking yield without taking on the full risk profile of equity ownership.
Resilience in Uncertain Conditions
Private credit is often described as resilient, not because it avoids risk, but because of how risk is managed.
Unlike public bond markets, private lending is relationship-driven. Loan agreements typically include covenants, regular reporting, and ongoing engagement with borrowers. This allows lenders to identify potential issues earlier and, where possible, work with management teams to protect value.[4]
While defaults can occur in any lending environment, senior positioning and active monitoring have historically supported stronger recovery outcomes compared to unsecured or covenant-light credit.
Looking ahead to 2026, default rates in private credit are expected to rise gradually as economic conditions remain uneven across sectors and regions.[5] Even so, defaults are likely to remain below long-term historical averages.[6]
In this environment, outcomes are likely to diverge more widely across the private credit universe. Variations in loan structure, underwriting discipline, and portfolio construction are expected to contribute to greater dispersion in returns. This makes the framework within which capital is deployed increasingly important.
Why Access and Selection Matter
Despite its growth, private credit remains difficult to access directly.
Many of the most attractive lending opportunities are sourced through long-standing relationships and private networks. Deal quality, borrower resilience, and downside protection can differ significantly across managers, leading to wide dispersion in outcomes.
For investors, diversification across borrowers, sectors, and lending strategies is essential. So is careful manager selection.
At The Family Office, private credit is treated as part of a broader portfolio strategy. Client capital is aggregated to access established credit managers with a focus on disciplined underwriting and structural protection. The objective is not simply to generate yield, but to do so with consistency across market cycles.
Income in a Changing Landscape
As we begin 2026, income remains a core portfolio requirement. Public fixed income continues to play a role, yet its behavior has become less predictable during periods of volatility.
Private credit offers a different approach. Income is often supported by contractual cash flows and senior positioning, while its continued growth reflects lasting changes in how capital is provided to businesses rather than short-term market dislocations.
This is not about forecasting interest rates or timing the cycle. It is about aligning portfolios with how financing operates today.
At The Family Office, we help investors build private credit allocations designed to generate reliable income while maintaining a disciplined approach to risk. In a more complex investment environment, private credit has become an essential component of modern portfolio construction.
