Investors piled into private credit over the past decade for higher yields – and for the stability that fixed income was always intended to provide during downturns.

But some of those credit investments now come with a different set of assumptions: that growth will continue, that these companies won’t be disrupted by changes like AI, that capital markets will stay open, and that managers can easily get out of their investments. That sounds like a stock. And in many cases, it behaves like one too.

“The true value of credit is that you're not relying on equity growth,” said Hamza Lemssouguer, founder of London-based European credit manager Arini. “If part of your credit portfolio relies… on always accessing capital markets at cheap costs… on the IPO market for exits — that’s too many conditions. Then those credit investments start to look a lot more like equity.”

That’s the confusion now coming into focus. Cheap money covered a lot of sins. Now it doesn’t.

What investors are, or should be, confronting is less a sudden break than a realization about what they actually own, and how concentrated those risks might be.

”When you have 10 different funds, are they doing the same thing or not?” Lemssouguer said. “Because if they’re doing the same thing, you really have one exposure.”

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Much of that exposure sits in similar types of businesses — large, sponsor-backed companies, often concentrated in sectors like software, long dependent on growth, financing, and eventual exit. That’s a “risk management mistake of overly concentrating your portfolio to an asset-light, highly levered, and highly disruptible industry.”

“A lot of the alternatives also became beta,” he said.  That overlap is not new, but it’s starting to matter.

“We’re still dealing with the regime change that happened in 2022,” Lemssouguer said.

He describes a system shaped by a long period of falling rates, where capital was cheap, volatility was brief, and markets repeatedly snapped back. “Every time you had a spread widening event or market vol, it was very short,” he said.  For years, that was the point. That leaves investors with a more basic question than where to find returns — and one that cuts across portfolios, not just individual strategies.

If much of what sits across private credit, private equity, and related strategies is driven by the same underlying forces, the issue isn’t just risk. It’s whether diversification is real, Lemssouguer said.

Or, as many investors are now confronting more directly: do they have multiple sources of return — or just different versions of the same exposure?

His answer is straightforward, even if it runs against how markets have behaved in recent years.

“What makes a good credit investment is not necessarily what makes a good equity investment,” he said. “Business growth is important for equity. Credit needs predictability. And growth is not necessary.”

He illustrates the distinction with a simple comparison: “Would you rather buy the debt of a restaurant that’s been around for 200 years… or lend to a new crypto platform?” In credit, the priority is not upside — it’s certainty.

“It is really important to rely on predictability, on asset coverage, on structuring, not on growth,” he said.

That principle was easy to lose sight of when growth, liquidity, and multiple expansion were all moving in the same direction. And when everything worked.

“Nobody comes back and pays you more because you were a nice lender,” Lemssouguer said. “It’s a contractual agreement.”

For investors, that may be the clearest way to frame the moment: not that credit is broken — but that some of it has been behaving more like equity than it appears.

That theme runs through a much wider conversation that explores why Hamza decided to start Arini, and what he felt was missing in European credit.

how Europe’s credit markets evolved after the financial crisis, and why they remain structurally different from those in the U.S.

why Europe is still largely bank‑financed, and what that leaves open for private lenders as banks pull back.

how fundamental, and entrenched, differences across countries’ legal systems and cultures shape both risk and opportunity in European credit.

why Europe’s lack of growth has been a challenge for equity investors, but helps credit.

The opportunities in asset‑backed, cash‑generating businesses outside of crowded sectors like software.

what real diversification looks like at a time when many alternatives are exposed to the same forces.

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