Ares Management (ARES) has a message for anxious investors: forget what you're hearing about rates and recession risks. Inside the private credit market, business is actually quite good.

According to the firm's Private Credit Outlook 2026 report, the industry is set for continued expansion over the next two years, fueled by diversified deal activity, expanding investor participation, and a growing footprint in corporate finance. This optimism comes at a time when traditional banks are pulling back from middle-market and bespoke lending, creating space for private credit managers to step in with flexibility, speed, and scale.

When Banks Step Back, Private Credit Steps Up

What started as a niche funding source has evolved into a primary financing option for both private equity-backed companies and corporate borrowers. Ares notes that deal sizes are growing, underwriting standards remain disciplined, and direct origination is supporting steady deal flow even as macro uncertainty persists.

Here's the interesting part: borrowers in private credit portfolios are maintaining strong earnings growth. That's helping the asset class hold up well despite higher rates and slower economic momentum.

Michael Smith, Co-Head of the Ares Credit Group, put it plainly: "There's a narrative around the challenging economic environment, but we're not seeing it in the performance."

It's Not Just About Floating Rates

Sure, everyone's watching the Federal Reserve and debating where rates go next. But Ares argues that private credit's appeal runs deeper than just floating-rate income. Loan spreads, upfront fees, covenant protections, and customized deal structures all contribute to attractive risk-adjusted returns that compare favorably with public credit markets.

This structural advantage helps insulate private credit from the volatility that typically comes with rate cycles. In other words, the asset class isn't just riding the interest rate wave—it's built differently.

Beyond Institutions: Wealth Channels Open Up

Another major shift highlighted in the outlook is the broadening investor base. Private credit is no longer just for institutional players. Wealth management channels and individual investors are increasingly accessing the asset class through semi-liquid fund structures, seeking income and diversification beyond traditional stocks and bonds.

The numbers back up the appeal. Ares reports that private credit has consistently delivered returns 200 to 400 basis points above liquid credit alternatives like bank loans and high-yield bonds across multiple rate cycles and economic conditions. Meanwhile, Ares' portfolio companies are showing remarkable resilience, with U.S. holdings posting annualized double-digit earnings growth.

The democratization trend is industry-wide. Asset managers including Ares, Blackstone (BX), Apollo Global (APO), and Blue Owl (OWL) have increasingly opened private credit strategies to wealth management channels through these semi-liquid structures.

Looking Global

Looking toward 2026, Ares sees growth opportunities extending beyond U.S. borders. Europe and Asia present continued expansion potential, as do adjacent strategies like asset-based finance and secondary markets.

"There are good opportunities to take advantage of movements in the markets or fundamental or technical events that allow you to find good risk-adjusted returns in different parts of the world," Smith noted.

So while Wall Street sweats the macro headlines, private credit managers are finding plenty to like in the fundamentals. Sometimes the best opportunities hide in plain sight while everyone's looking elsewhere.