Darrah and Erbprasartsook on Why Selectivity Matters in Private Credit
“In the early years, investors were primarily accessing the asset class for yield. Today, they are becoming far more selective,” Suppachark Erbprasartsook, Executive Vice President and Head of Investment Strategy at Principal Asset Management in Thailand, said regarding the evolution of private credit markets.
As Asian wealth investors increasingly seek income and portfolio diversification through private credit, market participants must look beyond headline yields to evaluate borrower quality, loan protections, and liquidity terms.
Principal Asset Management Strategies for Middle-Market Direct Lending
Private credit growth requires heightened attention to underwriting discipline, portfolio construction, and risk management rather than simple access and yield. Principal Asset Management focuses its direct lending strategy on senior secured loans where returns depend on underlying borrower fundamentals and contractual cash flows rather than volatile market sentiment. Matt Darrah, Managing Director and Head of Underwriting for the firm’s middle-market direct lending team, joined the firm in 2020 after starting Capital Southwest Corporation’s direct lending strategy and serving as a portfolio manager for Petrus Asset Management.
Lower and core middle-market companies often present distinct advantages compared to larger transactions where intense competition compresses pricing and structure. Smaller businesses typically maintain fewer financing options, allowing disciplined lenders to negotiate higher potential spreads, more favorable structures, and rigorous covenant protections. Closer engagement with company management provides direct visibility into business performance, recurring revenues, and cash flow resilience.
“Our experience suggests that being closer to the borrower often leads to better risk assessment and stronger long-term outcomes for investors,” Matt Darrah stated.
Higher interest rates have simultaneously improved income generation across the asset class and created opportunities for lenders to secure protective terms. Borrowers must demonstrate resilient business models capable of meeting financial obligations across various economic environments.
Liquidity Management and Redemption Terms in Fund Structures
Recent restrictions and pro-rating of redemptions across segments of the private credit industry show that fund liquidity must align with underlying asset repayment cycles. Suppachark Erbprasartsook emphasizes that liquidity must be evaluated at the point of initial allocation rather than during periods of financial stress.
A structural mismatch frequently occurs when fund redemption timelines assume benign investor behavior while underlying loans generate cash through scheduled amortization and refinancings. When market sentiment shifts, redemption demands can overwhelm vehicles that rely on secondary market asset sales. Principal Asset Management structures its portfolios to generate liquidity through borrower repayments alongside a sleeve of liquid investments, ensuring withdrawals can be met without forced asset sales.
Suppachark Erbprasartsook serves as Executive Vice President and Head of Investment Strategy at Principal Asset Management in Thailand.
Covenant Protections Help Lenders Monitor Borrower Health
Meaningful covenant protections serve as practical instruments for monitoring borrower health after a loan transaction closes. Matt Darrah notes that covenants provide early warning indicators of a deteriorating financial profile, allowing lenders to intervene constructively before operational or financial problems escalate severely.
Enterprise value coverage, strong sponsor support, and cash flow stability form the core of rigorous underwriting evaluations.
Asian wealth investors must assess how fund managers handle liquidity constraints, enforce loan covenants, and maintain long-term alignment of interests. Sustainable allocations depend on disciplined manager selection that prioritizes capital preservation alongside income generation.