Hamza Lemssouguer: If Your Credit Relies on Growth, Avoiding Disruption, and IPOs, It Looks a Lot Like Equity

The private credit sector faces a fundamental reassessment as investors recognize that many of their credit holdings increasingly exhibit equity-like risk characteristics rather than the downside protection traditionally associated with fixed income. Over the past decade, institutional capital flowed into private credit markets seeking higher yields alongside the stability that fixed-income instruments were designed to provide during market downturns. However, this thesis has deteriorated as the underlying assumptions supporting these investments have shifted dramatically.

Hamza Lemssouguer, founder of London-based Arini, articulates the central tension: "The true value of credit is that you're not relying on equity growth." Yet substantial portions of modern credit portfolios now depend on precisely such conditions—continued growth trajectories, uninterrupted access to capital markets at favorable rates, technological resilience against disruption (particularly from artificial intelligence), and reliable exit mechanisms via initial public offerings. These dependencies transform credit instruments into equity proxies, exposing investors to risks they may not have fully appreciated when deploying capital.

The concentration problem compounds this structural vulnerability. Many institutional investors believe they have achieved diversification by holding stakes in ten or more private credit funds. However, Lemssouguer notes that this apparent diversification masks a critical risk: if these funds pursue identical strategies—lending to large, sponsor-backed companies concentrated in software and other asset-light sectors dependent on growth financing and eventual exits—the investor effectively maintains a single, highly concentrated exposure. This represents what Lemssouguer characterizes as "a risk management mistake of overly concentrating your portfolio to an asset-light, highly levered, and highly disruptible industry."

The transition from the low-interest-rate environment to the current regime has exposed these structural weaknesses. Cheap capital availability masked underlying credit quality issues and enabled the proliferation of exits that appeared to validate the model. With that support withdrawn following the 2022 regime change, investors now confront the reality of their actual exposures. Many alternative investments have effectively become beta—correlated to broad market movements—rather than the uncorrelated, downside-protective instruments they were marketed to be. This shift represents not a sudden market failure but rather a delayed recognition of what investors actually own and how concentrated those risks have become.