Portfolio Dynamics

Lower rates can affect private credit portfolios through several second-order dynamics:

NAV Stability: Falling rates can support valuations of fixed-rate components within private credit portfolios, including mezzanine positions, capital solutions, and certain structured credit tranches.

Reinvestment Risk: Borrowers are more likely to refinance out of higher-cost legacy financings, accelerating repayment cycles and requiring redeployment into new assets at lower prevailing yields.

Convexity Gap: Unlike public bonds, middle-market loans offer limited convexity, reducing upside participation in a Treasury bull market and constraining portfolio benefit from further rate declines.