The private credit strategy built for resilience

Private credit has surged into the mainstream, but as capital floods the asset class, the dispersion in risk profiles is widening just as quickly. 

So, where do you go when the crowd starts reaching for yield? That’s the backdrop for my conversation with Gianpaolo Pellegrini of Muzinich & Co., who argues that not all private credit is created equal and that structure, not just spread, ultimately determines outcomes.

“Consistency comes from structural discipline rather than yield maximisation.” 

In this Q&A, Pellegrini outlines why Muzinich is leaning into “parallel lending” – a bank-aligned, lower-leverage approach that prioritises capital preservation and repeatable income over chasing higher returns. 

From underwriting discipline to the role of AI in credit selection, the discussion offers a clear lens on how investors can position more defensively within an increasingly crowded and competitive segment of markets.

The case for parallel lending

Private credit is often spoken about as a single asset class, but Pellegrini is clear that the underlying mechanics matter. Parallel lending, he explains, introduces a different dynamic by aligning investors alongside banks rather than competing with them. 

“Parallel lending is a form of private credit where asset managers co-lend alongside banks in senior secured first lien loans, typically on a pari passu basis.” 

That distinction is critical. Banks originate the loans and retain exposure, bringing both discipline and long-standing borrower relationships into the process. The result is access to higher-quality deal flow and structures that are less influenced by competitive sponsor-driven dynamics. 

“It offers a different risk-return profile – less reliant on competitive sponsor-driven markets and more anchored in bank-led underwriting.” 

For investors, that translates into more transparent portfolios, broader diversification and a more defensive footing within private credit.

Why consistency matters more than yield

While many areas of private credit have shifted up the risk curve, Pellegrini’s focus is firmly on repeatability. That discipline is reflected in lending to resilient, cash-generative businesses with conservative capital structures.

It is also reinforced by the co-lending model, where alignment with banks improves underwriting standards and ongoing oversight. Importantly, the strategy avoids more complex features such as payment-in-kind structures. 

“The strategy avoids reliance on more complex features such as PIK structures, ensuring income is realised rather than accrued.” 

Combined with diversification across sectors and geographies, the aim is to produce stable, predictable income with lower volatility, rather than maximising headline returns.

Balancing liquidity without diluting returns

One of the more nuanced aspects of the strategy is its blend of liquid syndicated loans and illiquid private debt, particularly within evergreen structures. 

“The mix of liquid and illiquid assets… is designed to be complementary rather than conflicting.” 

Private loans provide the core income and capture the illiquidity premium, while the liquid sleeve acts as a buffer. This allows for faster deployment of capital, supports redemptions and enables more dynamic risk management. Crucially, both components maintain similar credit characteristics. 

“Both components share similar credit characteristics… ensuring consistency in quality and avoiding style drift.” 

The outcome is a structure that seeks to retain the benefits of private credit while introducing a degree of flexibility that is often lacking in traditional closed-end vehicles.

Lower defaults by design, not by chance

A key claim of the strategy is materially lower default rates relative to broader private credit. Pellegrini attributes this to structural factors rather than favourable market conditions. 

“Lower default rates are primarily driven by more conservative underwriting and capital structures with leverage ratios in the 3.5x area compared to 5-6x of traditional large cap private credit.” 

Lower leverage provides a greater buffer against earnings volatility, which is often the key driver of defaults. The involvement of banks further strengthens this dynamic. 

“Because banks retain exposure, lending decisions are shaped by regulatory discipline and long-term credit considerations.” 

These features, Pellegrini argues, should hold up across cycles, supporting both resilience and stronger recovery outcomes in more challenging environments.

Where this fits in a portfolio

For Australian investors, Pellegrini positions the strategy clearly within portfolio construction.

“A strategy like this typically sits as a defensive income allocation within private markets.”

Rather than acting as a high-return credit allocation, its primary role is to deliver stable, floating-rate income with a focus on capital preservation. It can complement or partially replace traditional fixed income, particularly in a higher-rate environment. 

“It sits at the intersection of income, diversification and downside protection.” 

With exposure to European upper-middle-market companies and a lower correlation with public markets, Pellegrini notes it also offers diversification benefits, reinforcing its role as a core, defensive building block within broader portfolios.

For further insights from the Muzinich team, please visit their website.