February 2026

“’Why are you looking under the streetlight? I told you I lost my wallet over there, in the dark’. ‘Because the light is shining here’.”

Is Blue Owl a Yellow Canary? News that the large private credit provider is in some financial stress triggered a sell off, including in bank assets, and prompted regulators to announce a review of similar exposures among regulated entities. Other non-bank lenders, in both the US and Europe also announced problem loans, indicating that we may be in the early stages of a reckoning in the multi-trillion dollar market that has grown rapidly unencumbered by regulatory scrutiny. So why review bank exposures? Because the light is shining here! To be sure, many banks will have direct or indirect exposures to the market, especially where there are JVs with independent asset managers. But our view is that the bank sector (in particular, the non-mainstream banks) is not ground zero in this emerging problem, which has emerged because of AI driven disruption of hot sectors (e.g. SAAS) whose growth has been fueled primarily by private credit providers. Amidst talk of “lots of dry powder”, it is difficult to gauge the scale of the potential disruption at this stage, but it is already starting to have an impact in credit markets that were pricing in a Goldilocks environment. And late month news that a shooting war has broken out with Iran, sending oil prices higher will make this situation worse. While initial concerns center on higher inflation, the contractionary impact of higher energy prices could make the difference for economies already slowing and tip them into recession. While central banks have expressed concerns over lingering inflationary pressures, a brewing credit crunch will catalyze a move to lower rates, regardless of near-term price pressures.

All these factors contributed to a classic February reversal in most markets, and with hostilities in the Middle East, the volatility is likely to continue. To a certain extent, geopolitics will likely remain the dominating factor and the longer uncertainty prevails the greater the drag on economies. In the first Gulf War, the risk of long-term disruption of global energy supplies was a key contributor to pushing slowing economies into contraction and the parallels are worth noting.
For the month, the fund’s portfolio held up well, but unfavourable news about one holding saw performance slip into the red, with A shares down -0.58%.Looking forward, we believe that March will almost certainly be very choppy. Our aim is to look through the noise and focus on the medium term, keeping in mind the need to balance the exogenous factors driving markets against the fundamentals in our focusedsector and the array ofindividual opportunities within.