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By Alyssa Kubiak, Jimmy Hirschmann – Epic Funds Investment Team
Private credit has been having a moment, and that moment has grown into a continuously evolving asset class with a diversified playbook of strategies. We’ve all seen headlines urging caution on private credit. At its core, the news seems to have sensationalized an asset-liability mismatch apparent in large wealth products, rather than reporting the verdict on the underlying credit quality of borrowers. Meanwhile, institutional drawdown funds, the structures still most widely used in institutional investing, have held up fine.(1) This indicates the problem was one of distribution and structure rather than the asset class itself. The more interesting question, then, is not how private credit performed; it is who has been getting funded, and what they must do to deploy.
The answer is that capital went to a very small number of firms. Per McKinsey data, the top 25 private credit managers accounted for roughly 72% of all closed-end fundraising in 2025,(2) and per With Intelligence, funds under $1 billion accounted for just 6% of the capital raised in the first half of 2026, down from 13% in 2023. Funds over $5 billion accounted for 59%.(3) Capital has not simply flowed into private credit as an asset class. It has flowed into a handful of platforms that now have to put very large sums to work on a schedule.
This constraint shapes everything downstream. A manager deploying a fund of that size cannot be selective in the way the marketing suggests, because the universe of deals large enough to move the needle is small, well-banked, and generally intermediated. The result is everyone chasing the same sponsor processes. Terms loosen, differentiation disappears, and the premium lenders thought they were being paid for complexity turns out to be a premium for size. We believe the edge in private credit today is not being the biggest lender in the room. It is being able to operate where the biggest lenders cannot.(4)
For Epic Funds, asset-backed finance (“ABF”) is the clearest way to access this lower end of the market and earn compelling risk-adjusted returns.(5) Understanding how alpha is generated is a warranted discussion in the current market. One quick note on terms before we go further: ABF is not a separate market sitting next to specialty finance and niche private credit – it is a lending structure Epic Funds uses to access many of those niches. It describes how a loan is secured and repaid (against a pool of assets that produces its own cash) rather than what industry or niche the borrower is in.
What is Asset-Backed Finance?
As stated above, the simplest definition of ABF is lending against pools of assets that generate cash on their own, rather than lending to a company and relying on its enterprise value. The collateral universe is enormous, spanning everything from government contract receivables to a law firm’s dockets and legal claims to consumer loans. Two of these are collateral types Epic Funds’ current underlying managers lend against.(6) Whatever the asset, it often sits in a bankruptcy-remote vehicle that the lender holds a first claim on.(7) Advances are made against a borrowing base at a rate that builds in a cushion, cash collects through a waterfall that pays the lender first, and performance triggers allow that cash to be diverted or the facility to amortize early if the pool weakens. Underwriting stresses collateral, structure, and an originator's operations rather than one borrower's ability to refinance. The practical consequence is that repayment comes as the assets pay down, with no exit to wait for.
Why smaller managers?
Smaller managers are the natural home for this work. Structuring at this end of the market is bespoke by necessity, and a manager that is not optimizing for deployment pace has the freedom to shape an advance rate, a reserve, or a trigger around what a specific borrower needs. Consider a lender whose borrowers are paid by a government agency. It lends against the contract rather than the balance sheet, caps the advance at half the contract's value, routes collections through an account it controls, and is repaid pro rata as each milestone is paid. The structure follows the payer, not a template.(8) That kind of flexibility tends to compound into expertise, because small managers can usually find a narrow pocket of the market with genuine, underserved demand and then go deep rather than broad. A manager who has underwritten one collateral type for a decade holds insight into how it performs that newcomers may find difficult to price. Because those pockets are too small to interest larger lenders, that knowledge stays proprietary far longer than it would in corporate credit.
That expertise also gets paid for. These niche segments have historically been unbanked and starved for capital: per Bank for International Settlements data as reported by the ABA Banking Journal, the U.S. banking system now supplies just 33% of total credit to the U.S. non-financial sector, with nonbanks providing the rest through consumer and business loans and other traditional banking services.(9) Because these borrowers are rarely enterprise value stories, corporate direct lenders overlook them entirely, leaving a small manager negotiating against one or two competitors rather than eight.(10) The yields reflect that scarcity rather than any additional risk taken,(11) and the risk position itself is arguably better than the pricing implies: the lender often sits at the top of the capital stack with a first claim on collateral that produces cash on its own. Managers at this end of the market tend to have genuine operational expertise in the assets they would need to take over and collect on in a default. Knowing how to service a book of receivables or repossess and remarket equipment is not an academic exercise. It is the difference between a recovery and a write-down.(12)
The same discipline applies long before a monetary default. When lending against asset pools rather than company balance sheets, investors must closely evaluate the originator’s systems and collateral. Losses can arise from weak servicing, overstated asset performance, or missing or double-pledged collateral. None of that is diversified away at scale. Those risks are caught by verifying collateral at the asset level, reporting that surfaces deterioration early, conservative reserves, and triggers that divert cash before a problem compounds.(13) This specialist work, done one facility at a time, is conducted by managers who know the collateral cold and are not deploying against a clock.
Why now?
The path of rates from here is genuinely uncertain, and asset-backed finance is one of the few corners of private credit where that uncertainty does not have to be absorbed and held. Facility weighted-average lives typically fall between two and three years, materially shorter than the five-to-seven-year stated maturities common in corporate direct lending,(14) with amortization returning capital earlier in the life of the investment. That creates the option to re-underwrite against current conditions rather than living with terms struck in a different environment. If the credit cycle turns, lenders can reprice advance rates and reserves based on how the collateral is actually performing instead of waiting out a facility negotiated years earlier. A corporate lender committing capital today is underwriting five years of base rates and an exit market it cannot see. An ABF manager typically underwrites two and then decides again.
Scale has been viewed as an unambiguous positive in private credit over the last decade. As yields compress, we believe asset-backed finance offers the more compelling risk-adjusted opportunity, and that smaller managers are where the genuine, return-generating edge sits.(15)
This commentary is for informational purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy any securities, including interests in any fund managed by Epic Funds. Any such offer will be made only through a fund’s confidential offering documents to qualified investors where legally permitted. The views expressed herein are those of Epic Funds as of the date of publication, are subject to change without notice, and should not be construed as statements of fact. This commentary contains forward-looking statements, including statements regarding market conditions, interest rates, and the potential benefits of certain strategies, which are based on assumptions and estimates that may not be realized; actual results may differ materially. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Investments in private credit, asset-backed finance, and specialty finance strategies are speculative and illiquid, may not be suitable for all investors, and are subject to risks including credit, collateral, servicer and originator, fraud, valuation, interest rate, concentration, and liquidity risk. Epic Funds manages private investment vehicles available only to Qualified Purchasers as defined under the Investment Company Act of 1940. References to specific strategies, structures, or examples are for illustrative purposes only and do not constitute a recommendation of any individual security or strategy. Such examples do not represent all investments made by Epic Funds and are not indicative of overall results. There can be no assurance that any investment strategy will achieve its objectives. Epic Funds has an economic interest in the strategies described herein. Information has been obtained from third-party sources believed to be reliable, but Epic Funds has not independently verified such information, and its accuracy and completeness are not guaranteed.
Use of language describing our investment strategy is not intended to imply superior performance, unique access to investments exclusive to Epic Funds, or guaranteed investment outcomes.
Evolution Private Investment Collective, LLC (“Epic Funds”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration with the SEC does not imply a certain level of skill or training. Additional information about Epic Funds, including its Form ADV, is available at adviserinfo.sec.gov or upon request at ir@epic-funds.com.
Sources: McKinsey & Company, Global Private Markets Report 2026, “Private credit in 2025: A maturing industry navigates change” (McKinsey analysis based on Preqin data, accessed April 2026); With Intelligence, “Private Credit Fundraising Report H1: Market on Course for Record Year” (2026); ABA Banking Journal, “The Basel III endgame proposal: Yet another gift to private credit funds” (November 2023), citing Bank for International Settlements data; Epic Funds internal observations.
Endnotes:
(1) This statement reflects the opinion of Epic Funds based on its observations of the market as of the date of publication and is not based on a comprehensive analysis of the performance of institutional drawdown funds. Past performance is not indicative of future results.
(2) Source: McKinsey & Company, “Private credit in 2025: A maturing industry navigates change,” Global Private Markets Report 2026. The figure reflects McKinsey analysis based on Preqin data, accessed April 2026, and relates to closed-end private credit fundraising only. Epic Funds has not independently verified this information. Please refer to the original report for further details and disclosures.
(3) Source: With Intelligence, “Private Credit Fundraising Report H1: Market on Course for Record Year” (2026). Data reflects fund final closes tracked by With Intelligence from 2023 through H1 2026, certain of which were sourced from press releases and direct manager reporting. Epic Funds has not independently verified this information. Please refer to the original report for further details and disclosures.
(4) Statements of belief herein reflect the views and opinions of Epic Funds as of the date of publication, are subject to change without notice, and should not be construed as statements of fact. There can be no assurance that these views will prove correct.
(5) References to “compelling risk-adjusted returns” reflect Epic Funds’ subjective assessment of the opportunity set and are not a projection, prediction, or guarantee of future performance. There can be no assurance that any investment will achieve attractive risk-adjusted returns or any return, and an investor could lose all or a substantial portion of its investment.
(6) References to strategies in which Epic Funds currently invests are provided for illustrative purposes only and do not constitute a recommendation of any individual investment or strategy. Such examples do not represent all investments made by Epic Funds, are not indicative of overall results, and are subject to change. Epic Funds has an economic interest in the strategies described herein.
(7) Descriptions of asset-backed finance structural features, including bankruptcy-remote vehicles, borrowing bases, advance rates, cash waterfalls, and performance triggers, are general in nature and may not be present in every transaction. Such features are intended to mitigate, but do not eliminate, the risk of loss and may not operate as intended in all circumstances, including in a bankruptcy or insolvency proceeding.
(8) This example is hypothetical, anonymized, and simplified, and is provided for illustrative purposes only. While it may draw on characteristics of transactions observed by Epic Funds, it does not describe the terms of any specific investment made by Epic Funds or its underlying managers. Actual terms vary, and there can be no assurance that similar structures will be available or will perform as described.
(9) Source: ABA Banking Journal, “The Basel III endgame proposal: Yet another gift to private credit funds” (November 2023), citing Bank for International Settlements data. The underlying data may be more than one year old relative to the date of publication. While the article was published in November 2023, we continue to monitor the market and believe the information remains relevant and reflective of current market conditions as of the date of publication. Epic Funds has not independently verified this information.
(10) The competitive dynamics described reflect Epic Funds’ general observations and are illustrative only; they are not based on a formal study. The number of competing lenders varies by transaction and market segment.
(11) This statement reflects the opinion of Epic Funds. Higher yields may also reflect, among other things, greater credit, collateral, liquidity, concentration, operational, and valuation risk, and investments in these segments may be riskier than investments in other segments of private credit. Refer to the Important Information at the end of this commentary.
(12) Lenders may not in all cases hold a senior or first-lien position. Recoveries following a default are uncertain, may take significant time, and may be less than the amount owed. Operational expertise of a manager does not ensure a recovery or prevent losses.
(13) Due diligence, collateral verification, reporting, and monitoring processes cannot eliminate the risk of loss, including losses resulting from fraud, misrepresentation, or servicer or originator failure, and such risks may not be detected in a timely manner or at all.
(14) Weighted-average life and maturity ranges reflect Epic Funds’ general observations of market conventions and are approximations only. Actual weighted-average lives and maturities vary by facility and may be extended as a result of, among other things, defaults, amendments, or extensions. Realized durations in corporate direct lending may be shorter than stated maturities as a result of refinancings and prepayments.
(15) Smaller and emerging managers may have limited operating histories, fewer resources, and greater key-person, operational, and business risk than larger managers. Use of language describing our investment strategy is not intended to imply superior performance, unique access to investments exclusive to Epic Funds, or guaranteed investment outcomes.