Ares | 2026 investment outlook: Private credit

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[CIBC Asset Management]

[Ares]

[2026 investment outlook: Private credit]

[CIBC Ares Strategic Income Fund]

[Featuring Mike Zugay, Partner, Ares Credit Group]

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Hello, everybody. My name is Mike Zugay and I’m a partner in the Ares Credit Group.

There are really three components of our 2026 outlook for private credit. The first is the interest rate outlook. The second is the M&A environment. And the third is really the overall health of the economy.

So unpacking that a little bit, the interest rate outlook—our base rate is three months SOFR. Most banks and forecasters are forecasting 50 to 75 BPS of reduced rates in 2026, and the view is that the neutral rate will get to around 3%.

Now, this doesn't necessarily mean that yields are going to be down. There are three components to our returns. The base rate is one of them. And then the spread to the base rate and the fees that we charge on the loans that we're making to the borrowers.

So those three components are typically not correlated. So as I think about the interest rate outlook and the yield outlook for 2026, I would expect the all-in yield to be similar to the 2025 vintage of 9 to 10%.

For the M&A environment, in 2025 we saw a return to M&A volume that's been more in line with the 3 to 5 year average, which was coming off of historical 24-month lows.

We've seen mega deals come back, which is something that's been fairly limited over the last couple of years. We're seeing fairly healthy credit markets and the desire to provide leverage, in both the private credit markets and the broadly syndicated markets. The pipeline of activity going into 2026 is robust. There's a lower base rate environment. There's more conviction around the health of the US economy and corporate earnings. There's a lot of pent-up demand, given the longer hold period for the private equity transactions that have occurred over the last 5 to 7 years. So we do expect to see a lot more activity in 2026, which allows us to be even more selective.

And then finally, the overall health of the economy. It feels like there's a little bit of a herd mentality around this right now. But all the economists are coming out and they're increasing their GDP projections. I think the consensus is around 3% growth, which is fairly healthy. There's AI infrastructure demand that's adding fuel to the economy. So there's some upside, I think, if other parts of the economy hold in there as well. Which is set up well for the investments that we've already made. Obviously a healthy economy keeps credit defaults very low. And we expect that to continue.

We're positioning the investment strategy to align with our 2026 outlook in a few different ways. The first is, we have a lot of dry powder or capital to actually invest. Our business is active in all market conditions. We're patient and consistent with our approach as always. So I think we'll have the ability to see more transactions in 2026 and even be more selective. We are not in a rush to put our capital to work. Our fund complex allows us to deploy at a very measured pace, and I would expect that to continue in 2026.

Secondly, durability and downside protection. We always build our portfolios to be defensive in nature, so we're positioned for things to be not perfect in 2026 and beyond. We will continue to be highly diversified. We will focus on only the best credits that we see. We'll continue to avoid certain sectors that are more cyclical. But our positioning going into 2026 really is an output of our investment strategy that I just outlined.

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