In Part I, we argued that the redemption pressure hitting BDCs and interval funds is a structural liquidity problem – not a verdict on private credit broadly. At Epic Funds, our focus has never been on large-cap sponsor-backed direct lending – the segment at the center of today's dislocation. Since 2018, we have allocated almost exclusively to smaller, specialized managers operating in distinct corners of specialty finance: asset-backed lending, asset-based finance, litigation and law firm finance, government contract financing, non-sponsor-backed direct lending, and other niche strategies. These are not household names. That is precisely the point.
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Here is why we believe this segment of the market is structurally distinct for income-focused family office portfolios:
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1.  Uncorrelated to Corporate Credit Cycles

Specialty finance strategies typically derive their cash flows from sources that are largely independent of corporate earnings, private equity deal flow, or capital markets activity. The performance drivers are often fundamentally different, and that distinction is generally what a well-constructed family office portfolio needs.
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Example: Law Firm Finance (B.E. Blank)

B.E. Blank lends to contingency-fee law firms, collateralized by their future dockets — primarily mass torts and personal injury claims. These cash flows are driven by real-world events: accidents, workplace injuries, and natural disasters. They generally have little relationship to corporate earnings, software valuations, or Fed policy. The financial performance of these law firms shows measurably low correlation to broader financial markets.
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These are not defensive arguments. They are structural realities that exist regardless of what public markets do next.

2.  Senior Secured Collateral Protection

The managers we access typically lend senior and secured, often first-lien, with direct claims on identifiable underlying assets. This is not subordinated paper chasing yield with covenant-lite protections. Loan-to-value ratios are generally underwritten conservatively, collateral is specific and recoverable, and in many cases the manager maintains physical or legal control of the collateral from day one. These transactions often come with extensive covenant packages and cash controls that give the lender direct visibility into borrower performance and early warning of any deterioration.
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Example: Asset-Based Lending (WhiteHawk)

WhiteHawk provides asset-based loans to middle-market companies experiencing severe liquidity challenges. Every transaction is underwritten to recover full principal, interest, and fees in a liquidation scenario — before the loan is made. The team has maintained a zero-loss track record since inception in 2015. When borrowers face stress, WhiteHawk is not waiting in line; they have already stress-tested for that outcome.
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Example: Diamond Finance (DelGatto)

DelGatto lends to the midstream diamond industry via repurchase agreements, taking physical possession of the collateral — diamonds, luxury watches, and estate jewelry — at the time of each loan. LTV ratios are capped below 70% of wholesale liquidation value, providing meaningful buffer even in distressed scenarios. DelGatto fills a gap left by traditional banks following Basel III, in a market where relationships and expertise create a durable competitive moat.
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These are not theoretical protections. They are structural features that have been tested through prior cycles.
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3.  Smaller Managers, Better Sourcing

Scale is a liability in niche lending markets. The strategies we favor operate in segments that are too small or operationally complex for large platforms to pursue efficiently. As a result, these managers have built proprietary origination networks over years - relationships with law firms, government contractors, asset operators, and specialty servicers that simply do not appear on a broadly syndicated deal list.
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Because they are not competing with dozens of other lenders on every deal, they underwrite on their own terms, with better structures and better economics. Epic Funds has had a relationship with certain of these managers since their earliest vintages - access that reflects years of cultivation, not a placement agent call.
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Example: Government Contract Financing (LEONID)

LEONID provides short-term credit facilities to U.S. government contractors in the national security arena, collateralized by government-issued contracts. It is one of only 20 capital providers designated a Trusted Capital Provider by the Pentagon. LEONID has built its origination network through years of cultivated relationships with defense contractors and a board of senior advisors with deep experience in the U.S. armed forces, a sourcing infrastructure that simply cannot be replicated by a generalist platform.
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This is alpha that cannot be replicated by increasing AUM. It disappears the moment a fund gets too large.
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4.  Workout & Distressed Expertise

One of the most underappreciated qualities of the managers we favor is what happens when things go wrong. Specialized asset-backed and asset-based lenders have deep operational experience managing collateral, working through restructurings, and recovering value in ways that generalist direct lenders cannot. They have done this before.
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The large BDC platforms now facing liquidity pressure are navigating this kind of stress in a way they have not experienced before, at a moment when their LP base is least equipped to absorb the uncertainty. The managers we back have already been through prior cycles. Their workout experience is not a theoretical capability; it is a track record.
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The Right Structure for the Right Investor

Beyond the underlying strategy, fund structure matters as much as credit quality. The managers Epic Funds accesses require Qualified Purchaser status, a higher bar than the accredited investor threshold that governs most BDCs. The LP base is institutions, endowments, and sophisticated family offices who understand the nature of illiquid credit and are not prone to panic-driven redemptions.
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Critically, lock-up periods and redemption schedules are deliberately aligned with loan duration, and redeeming LPs are often transitioned into a natural run-off portfolio rather than triggering forced asset sales. There is no promise of quarterly liquidity on a multi-year loan book. There is no individual investor watching CNBC and calling their adviser.  

The structural mismatch that is plaguing public interval funds simply does not exist in this part of the market. That is not luck. It is design.
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The Case for Niche Specialty Finance as a Portfolio Allocation

Sponsor-backed middle market direct lending remains a meaningful component of many institutional private credit allocations. A satellite allocation to niche and specialized specialty finance is not a departure from that view, it is a complement to it. These strategies generally earn their place through a distinct risk profile, differentiated income, and structural characteristics that tend to behave differently from core direct lending across a range of market environments.
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The managers we access typically operate in senior secured, asset-backed structures. When a loan is backed by physical collateral, government receivables, or a law firm’s future dockets rather than enterprise value, the loss-given-default calculus is often fundamentally different. The lender is generally closer to the collateral from day one, and recovery in a stress scenario typically has a more believable line of sight than enterprise-value-dependent lending can offer with the same conviction.
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These strategies often carry covenant and cash control structures that are notably tighter than what has become standard in large-cap sponsor-backed lending. Covenants are not just legal protections; they are generally early warning systems. Managers who maintain cash controls and tight covenants tend to see stress emerging earlier, often have more levers to pull, and are typically better positioned to protect principal before a situation deteriorates. That operational proximity to the borrower is one of the hardest features to replicate at scale.
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Pricing in these segments often reflects the relative absence of competition. Loan sizes tend to be too small, structures too complex, or the expertise too specialized for large platforms to pursue efficiently. That dynamic can produce better economics, stronger terms, and more disciplined underwriting than the broadly syndicated market has delivered in recent years.
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The investor base in these strategies is typically structured to match the underlying assets. Lock-ups and redemption terms generally align with loan duration, redeeming LPs are often transitioned into a natural run-off portfolio rather than triggering forced asset sales, and the LP base tends to be composed of investors who entered understanding these are not a liquidity option. That structural discipline is not incidental to the investment case; it is part of it.
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As a satellite allocation alongside core sponsor-backed direct lending, niche specialty finance can offer differentiated income, lower correlation to the dynamics currently pressuring the broader private credit market, and a structural profile that is generally well suited for exactly the kind of environment we find ourselves in today.
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_{This commentary is for informational purposes only and does not constitute investment advice or an offer to sell or solicitation to buy any securities. The views expressed herein are as of the date of publication, are subject to change. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Investments in private credit and specialty finance strategies are illiquid and may not be suitable for all investors. Epic Funds manages private investment vehicles available only to Qualified Purchasers as defined under the Investment Company Act of 1940. References to specific underlying investments 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 sources believed to be reliable, but accuracy and completeness are not guaranteed.
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_{Sources: Bloomberg Opinion (March 5, 2026); Bloomberg News (March 4, 8 & 17, 2026); S&P Global Ratings (March 18, 2026); The Wall Street Journal (March 16, 2026); Evercore ISI; PitchBook (March 2026); Jefferies Financial Group analysis; iCapital, “Looking Beyond the Redemptions II” (April 2026); Blackstone BCRED Year-End 2025 Shareholder Letter (February 2026); Sixth Street Specialty Lending investor letter (March 2026); Epic Funds internal portfolio data.}