Banks and private lenders are teaming up, and that's good for investors

Please note, this interview was recorded 12 May, 2026

The world of private credit has grown enormously over the past decade, driven largely by global banks retreating from parts of the lending market following tighter post-GFC regulation. Private credit managers stepped into that gap, providing capital to companies that banks either could not, or would not, finance.

For the most part, banks and private credit managers have operated separately. But a newer model known as “parallel lending” is changing that dynamic. Rather than competing with banks, parallel lenders work alongside them, co-investing in the same loans while helping banks reduce concentration risk on individual deals.

According to Gianpaolo Pellegrini from Muzinich & Co, the approach offers a more conservative way to access private credit at a time when parts of the market are showing signs of strain. In Europe particularly, where corporate lending remains heavily bank-driven, Muzinich believes there is value in partnering with banks rather than competing against them.

“We like to share the risk with the banks because Europe is a very strong bank-centric market and we do not buy fully into the narrative of banks retrenching from good quality clients,” Pellegrini says.

In the interview above, Pellegrini explains where stress is emerging in private credit, why liquidity remains misunderstood, how parallel lending works alongside banks, and the areas of the market Muzinich is actively avoiding right now. 

INTERVIEW SUMMARY

Private credit is entering a new phase

After years of strong returns, low volatility and relentless inflows, Pellegrini believes private credit is moving into a period of normalisation.

“I think it is natural to see stabilisation of the market, the rebalancing of the market as well,” he says.

That adjustment is beginning to expose differences between managers and strategies. While the asset class broadly performed in lockstep during the boom years, Pellegrini expects greater dispersion from here.

“So far, the industry tended to perform in a pretty aligned manner in terms of returns, but now we are starting to see the differences between managers and between underlying strategies as well.”

He says stress is emerging in areas where leverage has crept higher, particularly in sectors that have enjoyed prolonged momentum. Software and AI-linked lending are two areas he flagged as requiring caution.

By contrast, Muzinich is focused on “plain vanilla, senior secured, first lien loans”, with lower leverage and diversified exposure to defensive businesses.

Why liquidity matters more than investors realise

One of Pellegrini’s biggest concerns is that investors misunderstand the liquidity profile of private credit products, particularly evergreen funds.

“This is inevitably an illiquid product which has been designed to have some liquidity feature,” he says.

Pellegrini argues that redemption “gates” are often framed negatively, when in reality they reflect the underlying nature of the asset class. Private credit loans are not traded like equities or government bonds, and investors should not expect daily liquidity.

Instead, he says managers need to design portfolios capable of naturally generating liquidity through loan repayments, refinancing activity and portfolio cash flows, rather than relying on selling assets or fresh inflows.

“What is important is to have very diversified portfolios generating actual liquidity,” he says.

That portfolio construction discipline becomes even more important during periods of market stress.

The case for a more conservative approach

While some of the industry’s largest managers have moved into bigger transactions with tighter spreads and higher leverage, Pellegrini believes this has created opportunities elsewhere.

“There has been a lot of money flowing into large private credit funds, creating a lot of competitive tensions for quality deals,” he says.

“The result is higher leverage, lower spreads, and a lot of competition.”

Muzinich’s parallel lending strategy targets a different segment of the market. The firm typically invests alongside banks in smaller transactions with leverage closer to three to three-and-a-half times net debt-to-EBITDA, rather than the five-to-six times leverage levels increasingly seen in parts of direct lending.

Pellegrini says the lower competition in this segment has allowed spreads to remain relatively stable since the strategy launched in 2018.

“We have seen stability in terms of spreads since we launched this strategy back in 2018,” he says.

For Pellegrini, the key non-negotiables remain straightforward: strong underlying businesses and sensible capital structures.

“Discipline in the credit selection and proper capital structure, that is all you care about.”

What Muzinich is avoiding right now

Sector selection is also becoming increasingly important. While Muzinich uses artificial intelligence as part of its credit analysis process, Pellegrini says the firm has very limited direct exposure to AI-related lending opportunities.

“We love AI as a tool to enhance credit selection. We use it, but we do not invest in AI,” he says.

Instead, the focus remains on defensive sectors and businesses with resilient cash flows. Pellegrini says the team is also paying close attention to geopolitical risks, particularly around energy and raw materials.

“We scrutinise carefully the exposure to raw material, to oil, to gas, and the ability of companies to pass through the potential price increase,” he says.

Finally, on valuations, Pellegrini says Muzinich applies a banking-style framework to its loan book using IFRS9 accounting standards and expected loss provisioning. 

He argues this creates a more stable net asset value profile and provides an additional layer of protection for investors during periods of volatility.