Institutional Investor Insights

The summer deleveraging has created cleaner entry points - Crowded Momentum and AI-related exposures experienced a significant technical unwind, but underlying earnings and AI investment remain resilient. The reset has improved entry points without materially weakening the fundamental thesis.

Asia has emerged as a stronger expression of the AI theme - Memory shortages are expected to persist for at least two years, with demand estimated 20–30% above supply. Asian semiconductor, power and cooling supply chains remain important beneficiaries of global AI spending.⁴

AI capex is increasingly translating into revenue - The focus is shifting from AI adoption toward monetization. Cloud growth has accelerated as AI infrastructure comes online, providing evidence of the revenue side of the capex cycle even as another wave of investment pressures near-term cash flow.

Higher real yields have improved the case for duration - U.S. real yields are above 2% across most tenors, while 30-yearreal yields are near their highest since 2003. Current yields provide a greater cushion against further rate increases: 10-yearyields would need to rise roughly 70bp before generating a negative one-year total return.⁵

Securitized credit stands out on relative value - Securitized assets continue to offer compelling quality-adjusted valuations, while security selection, structural analysis and origination alpha can create differentiation. They also offer attractive income potential and diversification benefits.

Global fixed income is becoming more differentiated - Asian bond markets are increasingly being shaped by local inflation, fiscal positions and policy choices rather than a single global duration factor. Widening dispersion across curves, currencies and carry is expanding the opportunity set for active global investors.

Private credit borrower fundamentals remain resilient - Interest coverage improved for the ninth consecutive quarter, while 64% of companies reported positive adjusted EBITDA growth, above the 12-year average of 57.5%. At the same time,10.5% of first-lien and unitranche loans were marked below90%, pointing to pockets of pressure beneath resilient aggregate fundamentals.⁶

AI is reshaping the private credit opportunity set - Private credit opportunities are increasingly emerging from large corporate and investment-grade borrowers seeking flexible financing, including the infrastructure and capital investment required to support AI development. Within software, the emphasis is shifting toward cash-flow generation, lower leverage and stronger downside protection as AI creates greater differentiation between borrowers.