Private credit has quickly evolved from a niche allocation to a strategic building block in sophisticated portfolios, but many individual investors still focus on “why now” instead of “why always,” according to Alona Gornick, Senior Investment Strategist at Churchill Asset Management. In the core middle market, Gornick sees a persistent opportunity set: healthy deal flow, contractual income, and structures designed to protect capital through cycles. With deal terms negotiated directly and sourcing driven by long-standing relationships, this segment can complement upper middle market exposure while adding diversification and downside protection. CM: “Why private credit always” — What makes this a strategic, long-term allocation regardless of market conditions? AG: Private credit is purposefully built to play the long game, and thrives not because of fleeting market dislocations, but because of its potential to deliver contractual yield, downside protection, and genuine portfolio diversification through economic cycles. Because private credit, and specifically directly originated middle market loans, are not publicly traded, they are more insulated from the mark-to-market volatility that can rattle traditional bond and equity portfolios. These are predominantly floating rate loans, which offer a degree of natural inflation sensitivity and have historically carried a yield premium over public credit alternatives that has remained attractive even as rates normalize. The opportunity set has also grown meaningfully as banks have pulled back from middle market lending over the past decade. For long-term investors who can accept illiquidity and understand the risks involved, private credit may offer a compelling combination of income potential, lower correlation to public markets, and senior secured capital structure protections. CM: Why is the core middle market the “perfect entry point” for individual investors newer to private credit? AG: The U.S. middle market is home to more than 200,000 companies and serves as a driving engine of economic growth – consistently outpacing other sectors in both employment and revenue growth, even during periods of uncertainty. Yet less than 5% of these companies are private equity-backed today, meaning there’s significant opportunity for private capital investors to identify high-quality, growth-oriented businesses on a highly selective basis. In addition to the vast opportunity set, what makes direct lending transactions in the middle market particularly attractive is how they are structured. These deals, specifically those within the lower to core end of the middle market, typically come with stronger investor protections – including traditional covenants and more conservative use of leverage – and are built on deep, relationship-driven partnerships with experienced private equity sponsors. For investors who are newer to private credit, we think of the core middle market, companies with roughly $10 to $100 million in EBITDA, as the “best-kept secret” in the asset class. It sits at the intersection of resilience and return, offering a meaningful way to diversify beyond traditional fixed income – with the kind of structural safeguards that make it a natural starting point for building private credit exposure. CM: What makes the core middle market particularly attractive relative to the lower middle market, the upper middle market or the broadly syndicated loan market? AG: Smaller companies, less than $10 million EBITDA, can face severe concentration risk from losing a single customer, product, or facility, while larger borrowers have the benefit of either public debt markets or upper middle market direct lending transactions, where spreads are generally tighter, structures looser, and leverage higher – creating the potential for more volatility for investors. We identified that companies in the core middle market strike the optimal balance: reasonable structures and leverage, attractive pricing, and stronger covenant protection. In the core middle market, we can selectively focus on market-leading businesses with established operating models and long-standing customer bases, but not so large that they have graduated to the liquid credit markets and can negotiate more borrower-friendly terms. CM: For investors already with upper middle market exposure, how can core middle market strategies enhance diversification within private credit? AG: The core middle market operates in a fundamentally different part of the lending landscape. These are smaller, often previously founder- or family-owned businesses recently acquired by private equity investors with a partnership forward approach, where deals are negotiated directly and relationships matter. That dynamic tends to produce better structural protections – stronger covenants, lower leverage, and pricing that reflects the complexity of the work involved – compared to larger transactions where terms are more competitive and lender protections can be diluted. There’s also a diversification benefit at the borrower level. Core middle market portfolios typically span a much broader universe of companies across industries and geographies, with the potential to reduce concentration risk that can be more pronounced in upper middle market strategies where deal sizes are larger and the borrower pool is naturally smaller. From a return perspective, core middle market loans have historically offered a yield premium over their upper middle market counterparts. For investors, that can translate into enhanced income potential. CM: How do you balance the appeal of higher contractual yields with the illiquidity and complexity of private credit? AG: Illiquidity is not a flaw to be managed; it is the very source of the yield premium, and for investors with appropriate time horizons, it can be viewed as a feature rather than a liability. That illiquidity premium, is also precisely what has historically insulated private credit from the sentiment-driven price dislocations that plague public markets when negative headlines hit, turning what some view as a constraint into a genuine structural advantage for patient capital. This is why education around the structure, complexity, and multi-year time horizons inherent in private credit is essential before making an allocation. CM: What misconceptions about private credit persist among individual investors or advisors? AG: Despite macro uncertainty and shifting narratives creating real noise for advisors and investors alike, the headlines don’t tell the whole story. One of the biggest misconceptions is that private credit is a monolithic asset class, when in reality it spans a wide spectrum of strategies and where you invest within that spectrum matters tremendously. High-profile headlines around private credit defaults, covenant erosion, and liquidity concerns tend to reflect issues concentrated in large-cap and upper middle market segments that behave far more like public credit than true private credit. CM: Looking forward over the next five years, what developments in the core middle market lending landscape are you watching most closely? AG: The democratization of private credit stands out, as individual investors remain significantly under-allocated to private assets, representing less than 20% of alternative investment AUM despite holding approximately 50% of global financial assets, signaling an enormous runway for growth. The same attributes institutions have long valued, including contractual income, downside protection, lower correlation to public markets, and diversification, translate directly to individual portfolios, and new fund structures are making access increasingly achievable. Still, individual investors are only in the early stages of allocating to alternatives, and it’s critical for managers to commit to the necessary education so individuals understand what they are investing in. The post “Why Always, Not Why Now”: Churchill AM’s Alona Gornick on Private Credit in the Core Middle Market appeared first on Connect Money. Source: https://www.connectmoney.com/stories/wh ... le-market/