Quarterly Market Outlook
Q4 2026

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Author

Matthew Pallai
Chief Investment Officer

Key Themes

Private Credit Record Breaking Fundraising
The real economy and credit fundamentals remain sound

Asset-based lending and real estate lending continue to be front runners
Rate path has flipped

Our previous posture of “disciplined optimism” remains validated by economic resilience; however, our year-end positioning is now defined by a critical shift in the expected policy path rather than economic strength alone.

Private credit’s growth story remains the primary narrative, showing no signs of slowing. Global fundraising in H1 2026 hit $190 billion—a 53% surge versus H1 2025. This puts the asset class on pace to shatter the full-year record of $240 billion¹, marking another landmark year for the space. As institutional allocations continue to rotate toward the asset class, private credit is solidified as the essential anchor of the modern alternative portfolio. Its ability to thrive in a shifting rate environment underscores its structural resilience and growing importance in global capital markets.

This growth persists despite a sharp reversal in rate expectations. Following Chair Warsh’s hawkish Jackson Hole address and inflationary pressure from AI CapEx and tariffs, markets have pivoted from pricing cuts to pricing two hikes within the next year. With six-month annualized PCE at 4.1% and reduced forward guidance, we anticipate heightened volatility around every data release.

The real economy continues to absorb these conditions well. Labor dynamics are nuanced rather than deteriorating, and the Eurozone’s 0.4% Q2 growth² beat expectations, offsetting weakness in China. We are navigating a “slower but durable” post-COVID equilibrium where the structural tailwinds for private credit remain the most compelling component of our outlook.

Credit fundamentals have continued to hold. Bank credit growth has stabilized around its long-term average, delinquencies have passed an inflection point, and severe bankcard delinquency was essentially flat year-on-year at 2.8%. Small business health is likewise stable, with 35% of firms now expecting to add staff and two-thirds expecting revenue growth³. Taken together, these indicators support a measured approach to putting capital to work.

Our conviction in asset-based lending and real estate credit has been reinforced, not revised. We remain active in making investments that exhibit a combination of the following characteristics: senior secured, shorter duration, self-amortizing, floating rate, identifiable collateral protected by structural features, and sound sponsorship. This allows the private credit market to benefit from the higher-for-longer path. We believe this emphasis on structure and collateral remains important as the rate environment evolves.

We remain cautious on direct lending. Spreads are flat on every measure, and the share of borrowers with interest coverage below 1x has increased — not a direction we like absent wider compensation. A new area of research and diligence for the research team has been credit secondaries, where possible discounts can be achieved unrelated to asset performance. We will continue to evaluate those opportunities selectively, with the same focus on downside protection that guides our broader portfolio.

Our posture heading into year-end: constructive but more alert — favoring secured, floating-rate, asset-backed exposure over anything unsecured or cash-flow dependent.

Real Estate Lending

Asset-Based Lending

Corporate Lending

Stabilizing fundamentals (lower starts, better absorption), are concentrating our bridge lending in the strongest sub-sectors: multifamily and industrial are priced most defensively.
Surprisingly, retail has the lowest vacancy of any major sector at 4.4%. Office continues to face obsolesce and thus oversupply.

Litigation finance & small business lending offer, in our view, attractive risk-adjusted returns, supported by stable small business health and future business optimism.
We remain underweight on BNPL, where originators keep the excess spread. We believe the levered, loss adjusted yields do not compensate for the risk.

Direct lending spreads are flat on every measure, with the lower middle market pricing weaker despite financing smaller borrowers.
Credit metrics remain benign — core middle-market defaults of 2.3%, but coverage is the watch item, with borrowers below 1x up to 8.2% from 7.5%⁴.

Views on the Credit Markets

Economic Outlook (12 – 18 Months)

Credit Metrics Continue to Improve: Contrary to Bearish Expectations

Building on the stability observed in Q1, Private Credit fundamentals remain resilient despite lingering market skepticism. The momentum carried into Q2 as covenant defaults further moderated to 2.7% — remaining significantly below the 3.8% six-year average — providing continued evidence of disciplined underwriting and structural durability through this sustained higher-rate environment.

Private Markets Increasing Role In Asset Based Finance

Fueled by surging investor demand, private capital has assumed an increasingly central role in Asset-Based Lending, steadily displacing traditional bank lenders as the dominant source of financing.

Commercial Real Estate (CRE) Fundamentals Rebalance as Supply Pipelines Recede and Absorption Accelerates

Following years of record-high supply, development pipelines are now receding across all property sectors as new construction starts retreat from their peaks. This tapering of supply is expected to drive higher absorption and occupancy rates, paving the way for sustained rent growth in supply-constrained markets.

Housing Market Dynamics Create Opportunities for Private Lenders

With $35 trillion in residential equity and 40% of U.S. homes owned outright, the mortgage landscape is defined by a highly resilient borrower base. This 71% equity cushion, paired with historic low delinquency rates, underpins a massive opportunity to provide liquidity through HELOCs and Closed-End Second Mortgages.

Reduced Loss Given Default (“LGD”) On Core Middle-Market Direct Lending

Core middle-market direct lending continues to outperform, maintaining lower default rates and loss-given-defaults (LGDs) than the leveraged loan, high-yield, and lower-middle-market segments. NCM remains committed to a data-driven portfolio construction strategy, intentionally avoiding the market segments most susceptible to volatility.

Conclusion

Macro backdrop: Rate path has flipped — markets now price 53bps of hikes, not cuts. Labor is cooling, not breaking. Credit fundamentals are firmer than the headlines.

This is for informational purposes only and is not intended to represent a recommendation from Nomura Capital Management LLC to invest in, or divest from, the credit market asset classes or security types referenced herein.

Disclaimer

Nomura Capital Management LLC (“NCM”) is a registered investment adviser. The information set forth herein, or in any of NCM’s market commentaries or similar writings or publications, is for informational purposes only and does not constitute financial, investment, tax or legal advice. This information is intended to be informational in nature and, by receiving this communication, you agree with its intended purpose described above. The views and/or strategies described in this communication may not be suitable for all investors. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that consider the particular facts and circumstances of an investor’s own situation. All investments are subject to varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy or product referenced directly or indirectly in this communication will be profitable, perform equally to any corresponding indicated historical performance level(s), or be suitable for your portfolio.

These materials reflect the opinion of NCM on the date of production. Opinions and statements of financial market trends that are based on current market conditions constitute our judgement and are subject to change without notice. Past performance does not guarantee future results. Where data is presented that is prepared by third parties, such information will be cited, and these sources have been deemed to be reliable. However, NCM does not independently verify or otherwise warrant the accuracy of this information. All investments are subject to risks, including the risk of loss of principal.

Nomura Asset Management, unless otherwise stated, refers to the Nomura Asset Management international business. Nomura Asset Management is part of the Investment Management Division of the Nomura Group, providing integrated public and private market asset management services across equities, fixed income, private credit and multi-asset solutions to intermediary and institutional clients. Nomura Asset Management primarily operates through several distinct investment managers, which include Nomura Capital Management LLC, Nomura Corporate Research and Asset Management Inc., Nomura Investment Management Business Trust (consisting of the Nomura Alternative Strategies, Nomura Investment Management Advisers, Nomura Investments Fund Advisers, Delaware Capital Management, and Delaware Management Company series), Nomura Investment Management Europe S.A., and Nomura Investment Management Austria Kapitalanlage AG.* Under certain circumstances, investment advisory services are also provided by Nomura Asset Management U.K. Limited and Nomura Asset Management Australia Pty Limited, which are Nomura Group companies.

*Macquarie Investment Management Austria Kapitalanlage AG is expected to be renamed mid-December.

Quarterly Market OutlookQ4 2026