US private credit spreads widen

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1. Key Themes

Theme 1: The Blurring Line Between Retail and Institutional Private Markets

High- and ultra-high-net-worth individuals are increasingly behaving like institutional investors, creating a structural shift in how alternatives are accessed and distributed.

"A growing chunk of the retail investors in the high- and ultra-high-net-worth tiers now resemble institutional investors in some important ways. When it comes to investing time horizons, risk appetite, market savvy and investable assets, it's becoming more common to see institutional-grade qualities in small investors who command very large pools of capital."

"Opportunities for access to those pools are driving wealth advisers and institutional consultants into each other's arms as both professions navigate the wealth channel's growing appetite for alternatives."

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Theme 2: US Private Credit Spreads Widening — Convergence with Europe

US private credit lenders are gaining pricing power amid market volatility, narrowing the long-standing spread advantage European lenders held over their American counterparts.

"Spreads in the US have widened by 50-100 basis points on most transactions since the year began, placing typical deal pricing around 525 bps in the current market. Meanwhile, recent activity suggests the European market has barely moved."

"European private lenders have demanded a spread premium of roughly 25-50 bps over the US market on comparable deals over the past few years, according to Apollo. Other lenders have flagged a bigger differential, with Hayfin putting the premium as high as 150 bps."

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Theme 3: Software M&A Acceleration on the Horizon

KKR signals that software dealmaking is poised to accelerate, representing a potential wave of liquidity and refinancing for lenders and investors with software exposure.

"The sector is positioned for dealmaking to accelerate and generate liquidity and refinancing opportunities for lenders, according to the firm."

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Theme 4: DPI Supplanting IRR as the LP Scorecard Metric

Limited partners are shifting how they evaluate fund performance, demanding actual realized returns rather than paper gains — a meaningful shift in how GPs must think about exit strategy and fund construction.

"LPs are done rewarding high IRRs that reflect unrealized valuations. DPI—which measures how much capital has actually been distributed—is now the metric driving fundraising conversations." (via The Wall Street Journal)

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Theme 5: Quantum Computing as an Emerging Dual-Use Investment Theme

The quantum computing space is attracting strategic capital from major tech players, while simultaneously surfacing as a material threat to existing crypto infrastructure.

"Quantum computers capable of breaking bitcoin's encryption could arrive as soon as 2030, and the crypto industry is now racing to prepare for a threat it once dismissed as decades away." (via Financial Times)

"Nvidia's VC arm NVentures invested in Paris-based Alice & Bob, extending the quantum computing group's €100 million Series B."

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2. Contrarian Perspectives

1. European Private Credit Is NOT the Premium Market It's Cracked Up to Be — At Least Right Now

The conventional wisdom has been that European private credit commands a reliable spread premium over the US. The data now challenges this: the US is closing the gap fast, and mid-market European spreads haven't budged, suggesting European lenders may be losing their relative pricing edge.

"In Europe, terms and spreads on deals remain largely unchanged from what they were six months ago...spreads have generally nudged up by 25 bps at most." — Patrick Schoennagel, Houlihan Lokey

"The average European direct lending spread for the past 12 months (to April) is 509 bps—lower than the full-year 2025 reading of 522 bps."

The implication: US private credit may now offer comparable or superior risk-adjusted pricing to European deals, inverting the traditional geographic allocation logic.

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2. Quantum Threat to Crypto Is No Longer a "Someday" Risk

The market has largely treated quantum-enabled cryptographic attacks as a long-dated, theoretical risk. The new timeline — as early as 2030 — compresses this into a near-term structural vulnerability that crypto protocols and institutional holders cannot ignore.

"Quantum computers capable of breaking bitcoin's encryption could arrive as soon as 2030, and the crypto industry is now racing to prepare for a threat it once dismissed as decades away." (via Financial Times)

This reframes quantum computing investment not just as a tech bet, but as critical defensive infrastructure for the crypto ecosystem.

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3. High IRR Is Now a Fundraising Liability, Not an Asset

Counterintuitively, GPs with strong paper IRRs but low distributions may find themselves at a disadvantage in fundraising conversations — a reversal from the prior cycle where headline return numbers drove LP commitments.

"LPs are done rewarding high IRRs that reflect unrealized valuations. DPI—which measures how much capital has actually been distributed—is now the metric driving fundraising conversations." (via The Wall Street Journal)

Supporting data point from the newsletter's own benchmark: 2015 vintage Global Funds-of-Funds show a median DPI of only 0.10x despite a 10.00% median IRR — illustrating exactly how disconnected paper performance has become from actual capital return.

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3. Companies Identified

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4. People Identified

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5. Operating Insights

1. Wealth Advisers Must Build Institutional-Grade Research Capabilities to Win the HNW Alternatives Market

The convergence of HNW and institutional investor profiles is creating demand for more sophisticated due diligence and portfolio construction tools at the wealth advisory level. Advisers who cannot deliver this will lose clients to those who can.

"Their joint efforts to cash in on the trend is driving demand for institutional-grade research capabilities to meet the needs of small but highly capitalized investors upping their interest in more exclusive investments like a private equity drawdown fund."

Implication for operators: Wealthtech platforms, data providers, and RIA infrastructure businesses that can deliver institutional-quality analytics at scale to wealth advisers have a significant commercial opportunity.

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2. GPs Must Prioritize Exits and Distributions to Remain Competitive in Fundraising

With LPs now centering fundraising conversations around DPI rather than IRR, fund managers need to actively manage portfolio companies toward liquidity events — not just value creation on paper.

"LPs are done rewarding high IRRs that reflect unrealized valuations. DPI—which measures how much capital has actually been distributed—is now the metric driving fundraising conversations."

Implication for operators: PE and VC firms should accelerate portfolio review processes, consider secondaries or structured liquidity alternatives, and explicitly communicate realized return track records in LP pitches.

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6. Overlooked Insights

1. AI Is Straining Physical Internet Infrastructure in the Gulf Region

Buried in the "Side Letters" section, this note signals that AI-driven data demand is outpacing the capacity of undersea cable infrastructure — a capital expenditure and geopolitical consideration rarely discussed in the context of AI investment theses.

"Undersea cables in the Gulf can't keep up with AI as the world is forced to begin rethinking internet infrastructure." (via Wired)

This points to an underappreciated infrastructure investment theme: physical data transmission networks as a bottleneck — and potential investment opportunity — in the AI buildout, particularly in the Middle East.

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2. European Defense VC Is Scaling Up Through Cross-Border Partnerships

While defense tech investment has gotten attention broadly, the specific model of pan-European VC collaboration for defense — like Earlybird partnering with French investor AVP for a €500M defense fund — is a structural shift in how European venture capital is organizing around sovereign priorities.

"Berlin-based VC Earlybird is raising a €500 million defense fund in partnership with French investor AVP."

This is notable both as a fundraising signal and as a template for how European VCs may increasingly co-invest across borders to reach the fund sizes needed to back capital-intensive defense technology companies.