Key Points Credit spreads remain tight despite significant geopolitical uncertainty, suggesting markets are underestimating risks in the current environment. The credit market has split between managers downplaying stress and those actively finding troubled opportunities, reflecting a fundamental shift in investor concerns from deal sourcing to default risk. Europe faces structural headwinds including significantly higher energy costs and weak growth that are creating stress among middle-market companies, with corporate restructuring activity expected to increase in 2026. The tight relationship between private equity and private credit, where credit is supporting overleveraged portfolio companies, poses a hidden risk given the multi-year backlog of unsold deals. Selecting managers with proven experience navigating downturns is more critical than the choice of investment strategy itself.