CLOs and Private Credit: Navigating a More Complex Credit Landscape

1. Credit remains resilient, but the dispersion is increasing

The overall credit environment remains relatively healthy. Default rates are at their lowest levels in roughly five years, and there is still strong demand for CLOs and credit products. However, the headline numbers mask increasing dispersion across managers, sectors, and individual credits.

Recoveries are becoming a bigger concern. Recovery expectations that were historically closer to 60% are increasingly being discussed around 40%, particularly for weaker credits. There are also pockets of distress in areas such as software, chemicals, building materials, staffing, and healthcare.

The message was not that the credit market is broadly distressed, but rather that credit selection and manager quality matter more as dispersion increases.

2. CLOs are evolving from an institutional product into a broader market

CLOs have historically been dominated by institutional investors, but that is changing. The growth of CLO ETFs is creating a new distribution channel and introducing CLOs to financial advisors and a broader investor base. The U.S. market is providing a potential model for Europe, although European regulators remain focused on ensuring that AAA CLO exposure is appropriately understood and distributed.

Japan is also becoming an increasingly relevant source of demand.

The broader takeaway: CLOs are becoming a more global and diverse market, both from an investor and distribution perspective.

3. Public and private credit are increasingly converging

One of the strongest themes from the conference was the continued blurring of the line between public and private credit.

Private credit, high yield, investment grade, distressed, private placements, and CLOs increasingly operate within the same financing ecosystem. The same borrower can move between these markets depending on financing needs, market conditions, regulation, and available capital.

Europe is particularly interesting. The private credit market is developing rapidly as banks have retrenched, and companies continue to require financing. ELTIF 2.0 could further expand access to private markets and accelerate the convergence between public and private structures.

Public and private credit should increasingly be viewed as interconnected parts of one credit ecosystem rather than separate markets.

4. Manager selection is becoming more important  

With approximately 70 CLO managers in Europe, and significantly more in the U.S., fundraising is becoming increasingly competitive.

Capital is flowing disproportionately toward larger platforms, while smaller managers increasingly need to differentiate through specialization, track record, sector expertise, or niche strategies.

Investors therefore need to look beyond headline fund performance and understand the underlying portfolio:

• Portfolio composition and concentration
• Credit quality and sector exposure
• PIK and non-accrual exposure
• Pricing and spread dispersion
• Recovery expectations
• Covenant structures
• Cross-holdings across managers
• Historical manager performance
• Individual credit and sponsor relationships  

The depth and consistency of portfolio-level analysis is becoming increasingly important. 

5. The next phase of CLO innovation will extend beyond traditional BSL CLOs  

There is significant innovation occurring in CLO structures, including:  

• Middle-market CLOs in Europe
• Hybrid CLO structures
• Multi-currency transactions
• Cross-currency structures
• Standalone transactions
• Greater integration between private credit and CLO markets
• Increasing co-investment between lenders and CLO managers  

This reinforces the idea that CLOs are becoming more of a technology/platform for financing credit rather than an asset class. The same technology can potentially be applied across direct lending, private placements, private credit, and Asset-Based Finance.

6. Private credit transparency is still a major issue

A recurring theme was the challenge of obtaining consistent information across private credit.

Unlike broadly syndicated loans and public bonds, private loans generally have limited market transparency unless you are directly involved in the transaction. Even when information is available through filings, it is often unstructured and inconsistent. Different managers may use different names for the same portfolio company.

Industry classifications can vary. Investment descriptions, PIK toggles, covenants, pricing, and other terms may be buried in filings.

This creates a significant opportunity for standardized data and technology. The market is moving toward greater transparency, but the data infrastructure still needs to catch up with the growth of the asset class.

7. Private credit is one of the biggest opportunities for AI  

Private credit remains one of the most manual areas of credit markets. A significant amount of work still involves:

• Reading filings
• Preparing credit memos
• Extracting financial information
• Tracking portfolio companies
• Monitoring covenants
• Comparing managers Identifying PIK toggles
• Tracking ownership and cross-holdings
• Monitoring news and corporate events

AI has the potential to dramatically reduce the manual work involved. The opportunity isn’t simply to build a chatbot. The real opportunity is to create a single place where standardized, structured and unstructured credit information can be queried and analyzed across the entire credit ecosystem.

8. The implications for SOLVE

The conference reinforced several areas where SOLVE is already investing:

• Public + Private: A unified data layer across public and private credit is becoming increasingly important as borrowers move between markets.
• CLOs: Expanding CLO coverage creates visibility into institutional ownership, manager exposure, portfolio overlap, liquidity and potential buyers/sellers.
• Private Credit: Granular historical portfolio data, standardized identifiers and consistent company/investment mapping become increasingly valuable as the market grows.
• AI: Private credit’s highly manual nature creates a significant opportunity for AI-driven research, extraction, monitoring and workflow automation.
• Asset-Based Finance: If private credit continues expanding beyond traditional corporate direct lending, ABF represents a natural next area of growth.

SOLVE’s expansion into ABS and related markets positions us to capture that convergence.

Bottom Line  

The overall message from Dublin was not that credit is deteriorating, it is that the market is becoming more complex and more interconnected. Credit remains resilient, but dispersion is increasing.

CLOs are becoming more global and accessible. Private credit continues to institutionalize. Managers are competing harder for capital. Public and private markets are converging. And investors increasingly need granular data to understand what is actually underneath the headline performance. The winners in this next phase will need to combine deep credit data, transparency and technology across the entire credit ecosystem.