👋 Hey, Nick here. You’re reading the 1st Edition of Three Questions with The Credit Crunch.

I’m delighted to welcome Marcel Schindler as this week’s guest. Marcel Schindler, Partner and Head of Private Debt at StepStone Group, leads the firm’s global private debt activities.

StepStone Group Inc. (Nasdaq: STEP) is a global private markets investment firm focused on providing customized investment solutions and advisory and data services to its clients. As of June 30, 2026, StepStone was responsible for approximately $913 billion of total capital, including $245 billion of assets under management. StepStone’s clients include some of the world’s largest public and private defined benefit and defined contribution pension funds, sovereign wealth funds, and insurance companies, as well as prominent endowments, foundations, family offices, and private wealth clients, which include high-net-worth and mass affluent individuals. StepStone partners with its clients to develop and build private markets portfolios designed to meet their specific objectives across the private equity, infrastructure, private debt, and real estate asset classes.

Stepstone’s Private Debt program leverages the Firm’s global platform to target privately negotiated debt transactions across corporate, real estate, and infrastructure debt. As of June 30, 2026, Stepstone Private Debt has total capital responsibility for $88 billion.”

1. Where do you see the market making mistakes right now? What opportunities does this open up?

“LPs exiting private credit strategies — such as BDCs — on the assumption of an impending credit downturn may be unintentionally positioning themselves for greater downside if that very scenario unfolds.”

Let me start with a simple premise: the market is generally right. However, while markets ultimately reflect aggregate information, they also tend to express periods of clear over- and underestimation, often driven less by fundamentals and more by investor sentiment.

At the moment, sentiment appears strongly influenced by a combination of risk aversion and return-seeking behaviour. We see this reflected in current allocation behavior. For example, some investors – mainly in the segment of wealth advisors - are rapidly reducing their exposure to credit, largely in response to negative media narratives suggesting a potential breakdown of credit markets. At the same time, proceeds are reallocated into equities.

This raises an important question: in what scenario would equities meaningfully outperform during a genuine credit dislocation? Historically, a credit downturn has typically been accompanied by falling equity valuations. In that context, moving from credit into equities may not reduce risk but increase it. In fact, LPs exiting private credit strategies — such as BDCs — on the assumption of an impending credit downturn may be unintentionally positioning themselves for potentially remaining exposed to downside risk if that scenario unfolds.

What this highlights, particularly in private markets and in comparison to public markets, is the importance of patience and persistence as core investment principles. Short-term sentiment-driven allocation shifts often come at the expense of long-term value creation.

That said, it is fair to acknowledge that credit markets have experienced a period of rapid growth. Such expansion inevitably requires adjustment, both at the GP level and in the quality of underlying investments. Increased competition has, in some cases, resulted in weaker manager selection and less disciplined transaction execution. GPs have often been incentivized to raise and deploy capital quickly, not only in primary strategies but also in secondaries.

This dynamic is particularly visible in the credit secondary market, where capital raised has significantly outpaced transaction volumes. As a result, discounts have compressed and, in my view, we believe credit tail risk may not be fully reflected in current pricing.

Some market participants argue that secondary volumes in credit will evolve in a similar way to private equity secondaries. However, this comparison overlooks a fundamental difference in the nature of the underlying assets. Credit instruments are typically shorter in duration and inherently more exposed to tail risk. As a result, the structural development of credit secondaries is unlikely to mirror that of private equity and underwriting discipline is even more required.

It is true that we have seen an increase in secondary activity, but this growth has been largely one-sided. It has primarily been driven by GP-led transactions, often used as a tool by managers to restructure portfolios and address tail exposures.

Taken together, these dynamics create opportunities for “patient” capital that focuses on providing liquidity to off-market transactions and on strategies that are not simply the flavour of the season.

2. What have you changed your mind on in the last year?

“The resilience of the corporate market has proven significantly stronger than most of us anticipated.”

Over recent years, the market has absorbed a series of major disruptions—COVID-19, rapid interest rate increases, energy price shocks stemming from both the Russia–Ukraine conflict and more recent geopolitical tensions in the Middle East, and now the accelerating impact of AI.

What stands out in particular is the adaptability of sponsor-owned companies. Their ability to adjust business models in response to unforeseen challenges, while maintaining competitiveness against both private and public peers, is remarkable. While this resilience is not yet fully reflected in returns—given that private equity is currently underperforming public equity over a ten-year horizon—it is clearly visible at the level of underlying business fundamentals.

In an environment characterized by increasingly rapid and frequent disruption, this reinforces the view that private market strategies may offer long-tern advantages when supported by disciplined selection and portfolio construction. However, realizing this advantage requires patience, as well as an ever-increasing level of selectivity and skill in manager and asset selection to achieve the desired outperformance.

3. What advice would you give investors navigating difficult portfolio situations? What bad advice do you hear repeated most often?

Diversification benefits are often not fully understood, and structural risks—such as increasing overlap in underlying positions across GPs—are frequently underestimated in today’s market environment.

Two areas that are frequently underestimated in private markets—not just in private credit—are portfolio construction and monitoring & reporting (M&R) capabilities.

Some investors focus heavily on manager selection and invest in building strong underwriting capabilities. While important, this alone is not sufficient to prevent fundamental issues when constructing and overseeing a portfolio.

When challenges arise in an existing portfolio, we believe investors should consider first performing a thorough, expert-level analysis of the underlying drivers, rather than reacting prematurely or “throwing out the baby with the bathwater.” Over the past 30 years, StepStone has led numerous portfolio analyses and restructurings, designed to help investors evaluate potential paths forward. While secondary transactions are one potential solution, there are often less obvious, more effective alternatives that remain underutilized by investors.

One of the most common misconceptions we encounter relates to portfolio construction and how portfolios should be monitored—particularly in credit. Diversification benefits are often not fully understood, and structural risks—such as increasing overlap in underlying positions across GPs—are frequently underestimated in today’s market environment.

Adopting a holistic portfolio construction approach, rather than focusing solely on GP selection, may help improve portfolio stability and support more resilient risk-adjusted outcomes over the medium term. This requires not only a deep and broad understanding of the investment landscape and GP universe, but also the ability to design and implement structurally diversified multi-credit portfolios.

Moreover, the rationale for domain expertise and asset-class specific tooling has grown in lockstep with the expansion of Private Credit as a proportion of institutional portfolios. Logically, as exposure increases, and commensurate regulatory scrutiny ensues, more light-touch or generalist processes become inadequate, and primed for optimization. For example, broad-brush comparisons between the syndicated loan universe and direct lending portfolios are now increasingly limited as a point of comparison given the emergence of specialist tools such as the Kroll StepStone Private Credit Benchmarks – a solution StepStone developed jointly with Kroll, a leading independent provider of private market valuations, in order to bring transparency to the market.

Bespoke and representative benchmarks are but one piece of the portfolio monitoring evolution, however. Absent the correct context, data and relative yardsticks may still evoke more noise than signal. It is here that the most prudent allocators are also soliciting the expertise of asset-class specialists who, by virtue of decades of skin-in-the-game investing experience, can significantly enhance their internal portfolio monitoring process. Whether via time-tested methods that challenge creditworthiness and valuation assumptions, or via proven scenario analysis that helps transform historical data into forward-looking risk intelligence, partnerships that externalize monitoring and reporting are helping unlock the private markets scale that LPs require.