By Eric Hough on April 22, 2026April 22, 2026 “Breathe”. Past events, uncertainty, information overload, misinformation, perceived risks are a few catalysts that evoke the human response of fear and panic. Whether it be a dentist visit, a final exam, a politician, the dotcom bubble, GFC, Covid, AI or war; we have all felt our own sense of fear at some point in our lives. Important is the structure we have in place prior to these events to help through difficult times; family, friends, teachers, mentors, therapist, advisors and … Interval Funds. I will be here all week! My opinion on the current state of private credit is that it is being unfairly compared to the GFC of 2007. The structure of an interval fund is the perfect home for private credit and other alternatives. In addition, I dare say it be a key contributor from keeping it from cascading out of control. An interval fund is a specific type of closed-end fund registered with the SEC under the Investment Company Act of 1940. For investor protection, funds must provide regular disclosures, audit financials, robust valuation practices, and independent board of directors. Investors range from retail to institutional and endowments. The fund can invest in liquid securities and illiquid private assets while offering mandatory quarterly repurchase of shares up to 5% of AUM. Illiquid private investments and 5% repurchases will be key to my argument later. Lending standards have clearly tightened over the past two to three quarters across both banks and private lenders. Ongoing uncertainty around inflation expectations has pushed the 10-year yield roughly 30 basis points higher since Q4 2025. While this does not constitute a full credit crunch, it does reflect a less accommodative environment, particularly for companies with under $25 million in EBITDA, where defaults have risen meaningfully. In this segment, trailing 12-month default rates have reached 10.7%, compared to a much lower 3.9% for mid-sized companies with $50 million or more in EBITDA. That said, this credit “speed bump” appears to be improving modestly on a year-over-year basis. Healthcare providers and consumer products have been among the hardest-hit sectors over the past year, but February showed early signs of stabilization. Healthcare defaults declined to 7.1% from 7.9% in January, while consumer products improved to 11.1% from 12.8%. Notably, despite significant media attention, software and technology remain relatively resilient, with a trailing 12-month default rate of 1.8%, down slightly from 1.9% in January. As loans originated during the low-rate environment of 2021–2022 (capital was flush and loan covenants oversight weakened) are being refinanced into a higher-rate backdrop with more constrained capital flows, repricing and stricter covenants are necessary. Even with tighter conditions, a broader credit crisis still appears unlikely in the absence of a recession. A real crisis, The Great Financial Crisis of 2007-2009, can be narrowed down three main catalysts: Over-Leverage, extreme LTV loans, and mismatched maturities. Banks and Broker Dealers were levered 25-35X their balance sheet (currently 10-18X). Five-, Ten-, Fifteen-and Thirty-year loans originated with LTV values of 90%-100% of asset values. All the while, it is being financed by readily available customer deposits. We all know the story, underwriting tightened, collateralized assets fell below loan values, liquidity vanished, depositors pull cash…insolvency. In the years that followed, legislation and regulations were passed to increase capital ratios, lower leverage, loan loss reserves and put limit on using bank deposits for proprietary trading. Due to limits on lending and risk, broker dealers limited lending to large institutions while community banks handled small business. The void in the middle market credit space was vast. Enter Private credit. A financial advisor will have a general plan that looks something like this in decreasing order of day-to-day importance: Emergency funds Working Capital Home Life Insurance Retirement College Fund Stocks/Bonds/Mutual Funds Private Assets This is the single most important difference between today and the GFC. During the GFC, loans were made from non-investors (depositors) from the very top of a financial plan. Today, loans were made from investor capital at the bottom of their financial plan. In addition, comparing metrics from GFC to the average large Private Credit Interval Funds: So why is the interval fund the perfect structure for the private credit ecosystem? First, this structure has played a critical role in filling the gap in middle-market lending that emerged around 2015. This broad segment of companies is essential to economic growth and overall GDP. Without the expansion of private credit, from roughly $1 trillion in 2015 to nearly $4 trillion today globally ($1.5Trillion in USA), it’s unlikely that our economy, GDP, or public markets would be where they are now. Second, forcing liquidity on inherently illiquid assets during periods of stress can lead to significant value destruction. The 5% repurchase cap helps protect both redeeming and remaining investors. It imposes discipline on those reacting to short-term volatility by pacing redemptions over time, while also shielding existing investors from forced sales at steep discounts. During the Global Financial Crisis, for example, publicly traded convertible bonds became highly illiquid and declined sharply in 2008, only to rebound with their two strongest years of the decade in 2009 and 2010. Third, depositors and taxpayers are not bearing the risk of these investments. Instead, investors are compensated with spreads of roughly 300–400 basis points over BBB-rated bonds for participating in private credit. Over a ten-year period, that excess return can compound into approximately 70% of outperformance. Just as important, these investments should generally represent the least liquid portion of a portfolio—typically the bottom 5–15% in terms of liquidity and financial need. Investors need to understand the interval structure is not a fully tradable vehicle, but one designed to return income and principal gradually over a 7–10-year period. This long-term horizon is essential to fully capture the illiquidity premium of the underlying loans. Every 10-15 years, the US has a credit crisis. We could very well be approaching one now or it could prove to just be a speed bump. Without evidence of a true recession, especially with S&P 500 earnings analyst forecasting double digit growth in 2026 and 2027. I just can’t see a full-blown crisis. Opportunities will arise, and those with dry powder and good underwriting will inevitably be buying great loans for a discount. Look no farther than JP Morgan committing a new $50B to direct lending this year. In the words of Eddie Vedder, “Just Breathe”. Disclosure: I/we have no stock, option, or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1096421 Eric Hough Director, Asset Management Eric Hough joins Great Valley Advisors as Director of Asset Management, specializing in Alternative Investments. In this role, he will oversee portfolio strategy, manage fund investments, and build lasting investor relationships. With extensive Wall Street experience and deep expertise in alternative assets, Eric is well-positioned to deliver meaningful value to clients while advancing the firm’s long-term growth initiatives. See Full Bio