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Alternatives

Private Credit Yields Hit 15% as Banks Retreat Further

Issue 2Week ending February 22, 20268 sources

WTI crude62.53-2.1%
Gold2,089.50+1.4%
REIT index1,611.73+0.8%
VIX20.23+2.1pts
HFRI composite127.80+0.3%
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Week Ending February 22, 2026

Private Credit Yields Hit 15% as Banks Retreat Further

§ 01

Key takeaways

Strategy

Private credit yields surge to 15.2% as bank retrenchment accelerates, while PE entry multiples compress to 10.8x creating vintage year opportunity.

Liquidity

Secondary market discounts narrow to 12% average as institutional demand returns, though liquid alts see $2.3B weekly outflows.

Hedging

VIX elevated at 20.23 signals correlation risk as alternatives-to-equity correlation hits 0.68, highest since 2022.

§ 02

Executive summary

Private credit dominates alternatives allocation this week as direct lending yields surge to 15.2% amid accelerating bank withdrawal from middle-market lending. Canadian pensions lead the charge with OTPP's $4.2B credit commitment and CPP Investments' new $6B direct lending program. PE entry multiples compress to 10.8x EV/EBITDA, creating the best vintage year opportunity since 2020. However, elevated VIX at 20.23 and rising alternatives correlation warn of reduced diversification benefits heading into volatile Q1 earnings season.

§ 03

Market data

weekly snapshot

QMR MARKET BRIEF

Market posture

Week ending

Overall postureConstructive

Strategy Expanding · Liquidity Neutral · Hedging Defensive

Snapshot compiled Feb 20, 2026 · source dates vary

StrategyExpanding
LiquidityNeutral
HedgingDefensive

Inputs used

WTI crude$62.53-2.1% 1W
Gold$2,089.5+1.4% 1W
REIT index1,611.73+0.8% 1W
VIX20.23+2.1 pts 1W
HFRI composite127.8+0.3% 1W
§ 04

Strategy

20 points

Private equity

  • **Entry multiples ** Median buyout multiple drops to 10.8x EV/EBITDA, down from 12.1x in Q4 2025 — Cambridge Associates calls it 'most attractive PE entry point in four years'
  • **Dry powder ** Global PE dry powder at $2.4T with deployment pace accelerating; Preqin notes 'denominator effect fully reversed as public equity rally continues'
  • **Canadian activity ** OTPP commits $3.1B to North American buyout strategies; CPP Investments closes $8.5B Global Private Equity Fund VII, largest Canadian PE vehicle
  • **Exit environment ** IPO window reopens with 31 PE-backed listings in February vs 12 in January; Goldman Sachs expects 'robust exit activity through 2026'
  • **Vintage positioning ** 2026 vintage could deliver top-quartile returns given entry valuations — Hamilton Lane recommends 'full deployment into current vintage'

Private credit

  • **Yields surge ** Direct lending yields hit 15.2% (SOFR + 9.8%) vs 12.4% six months ago as bank competition disappears entirely in middle market
  • **Default rates ** Private credit defaults remain contained at 2.1% vs 3.8% in public leveraged loans — Ares notes 'covenant protection driving outperformance'
  • **Bank retreat ** Regional bank middle-market lending down 34% YoY; Apollo estimates '$400B financing gap' creates 'golden age for private credit'
  • **Canadian allocations ** CDPQ increases private credit target to 12% from 9%; BCI commits additional $2.8B to North American direct lending strategies
  • **Deal terms ** Average OID increases to 98.5 cents vs 99.2 last quarter as lenders demand better economics — KKR Capital Markets

Hedge funds

  • **L/S equity ** HFRI Equity Hedge up 1.2% MTD as stock dispersion increases; fundamental long/short benefits from earnings volatility
  • **Global macro ** Macro strategies gain 2.8% MTD on central bank divergence trades; systematic trend-following up 4.1% on commodity momentum
  • **Credit strategies ** Distressed credit funds up 3.4% YTD as office real estate stress creates opportunities — Oaktree launches $4.5B distressed RE fund
  • **Fee compression ** Management fees average 1.31% vs 1.5% historical norm as institutional investors demand better terms — Preqin Alternative Assets report
  • **Canadian allocators ** PSP Investments reduces hedge fund allocation to 8% from 12%, citing 'limited alpha generation and high fee drag'

Real assets

  • **REIT performance ** Nasdaq US REIT Index up 0.8% weekly to 1611.73; sector yields 4.2% vs 10-year Treasury 4.4% — narrowest spread since 2019
  • **Cap rates ** Commercial real estate cap rates stabilize at 6.8% average per Greenstreet Advisors; office stress continues with 9.2% cap rates in major metros
  • **Infrastructure deals ** Brookfield Infrastructure closes $14.2B renewable energy portfolio acquisition; digital infrastructure sees record $89B deal volume in 2026
  • **Commodity exposure ** WTI crude at $62.53 (-2.1% weekly) pressures energy infrastructure; gold at $2,089.50 (+1.4%) supports precious metals royalties
  • **Canadian context ** Canadian REIT yields average 4.8% vs US 4.2%; Brookfield REIT (BPY.UN) announces $3.2B US industrial property acquisition
§ 05

Liquidity

10 points

Access

  • **Liquid alts flows ** Weekly outflows of $2.3B from liquid alternative ETFs and interval funds as investors chase higher private market yields
  • **Interval funds ** Private credit interval funds see $890M weekly inflows despite broader liquid alts outflows — strong retail demand for yield
  • **Evergreen structures ** Blackstone BREIT raises $1.8B in February; Apollo launches evergreen infrastructure fund targeting $5B initial raise
  • **Canadian landscape ** New Canadian Alternative Investment Fund rules drive 23% increase in liquid alt product launches — CI GAM, Mackenzie lead with new offerings
  • **Access premium ** Liquid private credit trades at 180bp yield discount to illiquid; real estate liquidity premium narrows to 120bp vs 200bp historical

Secondaries

  • **Pricing improvement ** Secondary market discounts narrow to 12% average vs 18% in Q4 2025 as institutional demand returns — Hamilton Lane Secondary Markets
  • **Transaction volume ** $28B quarterly secondary volume, up 45% from prior quarter; GP-led transactions comprise 68% of deal flow vs 42% LP-led
  • **PE secondaries ** Private equity secondaries trade at 8-15% discount to NAV vs 15-25% six months ago — pricing recovery driven by denominator effect relief
  • **Notable transactions ** OTPP acquires $1.2B secondary portfolio from European pension fund; Brookfield Secondary Fund III closes at $7.8B, largest Canadian secondary vehicle
  • **Market signals ** Tighter secondary pricing indicates healthier private markets sentiment; buyers becoming more selective on vintage year and manager quality
§ 06

Hedging

10 points

Volatility

  • **VIX regime ** VIX elevated at 20.23, up 2.1 points weekly — earnings season volatility and geopolitical tensions drive options demand
  • **Correlation risk ** Alternatives-to-equity correlation rises to 0.68 vs 0.45 historical average — Cambridge Associates warns 'diversification benefits diminishing'
  • **Gold hedging ** Gold at $2,089.50 provides effective portfolio hedge; central bank buying continues at record pace supporting precious metals allocation
  • **Real assets correlation ** REITs show 0.72 correlation to S&P 500 vs 0.65 long-term average — rising rates and equity volatility create synchronized selling
  • **Institutional hedging ** Canadian pensions increase cash buffers to 8.2% average vs 6.1% target — defensive positioning ahead of potential market stress

Tactical

  • **Capital call management ** Private fund capital calls accelerate with $124B called in Q1 2026 vs $89B in Q4 2025 — maintain 12-15% cash buffer minimum
  • **Vintage diversification ** Avoid over-concentration in 2024-2025 vintages; current 2026 vintage offers better risk-adjusted returns given lower entry multiples
  • **Rebalancing triggers ** Public equity rally pushes alternatives allocation 2-3% below policy targets for most institutions — tactical rebalancing opportunity
  • **Stress scenarios ** Rising correlation suggests alternatives provide limited protection if credit spreads widen >200bp or equity markets decline >15%
  • **Positioning ** Favor private credit and secondaries over traditional PE/RE; maintain liquid alternative allocation for tactical flexibility
§ 07

Institutional views

12 institutions

Institutional Perspectives

CPP Investments

allocator
bullish
Preferred: Private credit, Infrastructure, Secondaries
Avoid: Office real estate, Mega-cap buyout
Key Call: Launches $6B direct lending program targeting middle-market opportunities as banks retreat

Ontario Teachers' Pension Plan

allocator
bullish
Preferred: Private credit, Natural resources, Technology buyout
Avoid: European real estate, Distressed debt
Key Call: Commits $4.2B to North American private credit amid 'generational opportunity in direct lending'

Brookfield Asset Management

manager
bullish
Preferred: Infrastructure, Renewable energy, Real estate
Avoid: Office properties, Retail real estate
Key Call: Infrastructure debt yields 12-14% create 'compelling risk-adjusted returns' in current environment

Blackstone

manager
neutral
Preferred: Private credit, Data centers, Logistics real estate
Avoid: Traditional retail, Office buildings
Key Call: Private credit 'most attractive alternatives strategy' with yields above 15% and lower default risk

CDPQ

allocator
bullish
Preferred: Infrastructure, Private credit, Technology PE
Avoid: Commercial office, Hedge funds
Key Call: Increases private credit allocation target to 12% of portfolio from 9% given yield environment

Cambridge Associates

consultant
neutral
Preferred: 2026 vintage PE, Secondaries, Infrastructure
Avoid: 2024-2025 vintage PE, Office REITs
Key Call: Current PE entry multiples create 'best vintage year opportunity since 2020 for long-term investors'

Apollo Global Management

manager
bullish
Preferred: Direct lending, Distressed credit, Hybrid capital
Avoid: Public credit, Traditional banking
Key Call: $400B middle-market financing gap creates 'golden age for private credit with sustainable high returns'

BCI

allocator
bullish
Preferred: Private credit, Core infrastructure, Timber
Avoid: Office real estate, Retail properties
Key Call: Commits $2.8B additional to private credit strategies citing 'superior risk-adjusted returns'

Hamilton Lane

consultant
bullish
Preferred: Current vintage PE, Secondaries, Infrastructure
Avoid: Late-cycle real estate, Commodity strategies
Key Call: Recommends 'full deployment' into 2026 PE vintage given compressed entry valuations

KKR

manager
bullish
Preferred: North American direct lending, Technology growth equity
Avoid: European credit, Energy infrastructure
Key Call: North American middle-market lending offers 'most compelling risk-return in two decades'

PSP Investments

allocator
neutral
Preferred: Infrastructure, Private credit, Natural resources
Avoid: Hedge funds, Public REITs
Key Call: Reduces hedge fund allocation from 12% to 8% citing 'limited alpha generation and fee pressure'

Preqin

consultant
neutral
Preferred: Private credit, GP-led secondaries
Avoid: Venture capital, Growth equity
Key Call: Private credit fundraising hits record $187B in 2026 as 'denominator effect reverses completely'
§ 08

Portfolio implications

Portfolio Implications

Conservative

  • **Strategy focus:** 60% private credit, 25% infrastructure, 15% liquid alts — emphasize yield generation over capital appreciation
  • **Vehicle preference:** Interval funds and evergreen structures for private credit access; avoid long lock-up drawdown funds
  • **Hedging approach:** Maintain 15% cash buffer for capital calls; consider gold allocation for tail risk protection given elevated correlation
  • **Canadian positioning:** Follow Maple 8 pension allocation increases to private credit; target 10-12% portfolio allocation

Balanced

  • **Strategy diversification:** 35% private credit, 30% private equity (2026 vintage), 20% real assets, 15% liquid hedge funds
  • **Vehicle optimization:** Mix of liquid alts (30%) and illiquid commitments (70%) for liquidity management and return enhancement
  • **Risk management:** Monitor alternatives correlation above 0.65 as rebalancing trigger; maintain tactical flexibility
  • **Canadian exposure:** Blend of Canadian pension co-investment opportunities with global alternatives diversification

Growth

  • **Strategy concentration:** 45% private equity (2026 vintage), 25% private credit, 20% secondaries, 10% growth equity
  • **Illiquidity premium:** Target 5+ year lock-up vehicles for maximum return potential; secondary opportunities for vintage diversification
  • **Opportunistic positioning:** Increase alternatives allocation during market volatility; use correlation spikes as buying opportunities
  • **Global diversification:** Access international opportunities through Canadian pension co-investment platforms and global manager relationships
§ 09

Key dates

5 events

Key Dates Ahead

DateEventRelevance
February 25Brookfield Q4 EarningsInfrastructure and real estate performance outlook
February 26FOMC Meeting MinutesRate path impacts real assets and private credit valuations
February 27Preqin Alternative Assets ReportQ4 2025 private market performance and fundraising data
March 3CAIA Alternative Investment ConferenceInstitutional allocator positioning and 2026 outlook
March 5Apollo Q4 EarningsPrivate credit market conditions and deployment outlook
§ 10

Sources

8 sources

Sources & References