Markets rise and fall not because fundamentals shift overnight, but because attitudes toward risk do. These attitudes don’t change gradually, they swing, like a pendulum.
In periods of prosperity, confidence builds, caution fades, and risk feels outdated. Capital becomes abundant. Investors begin to treat due diligence as a formality, underwriting turns into a negotiation, and decisions are made not on what may go wrong, but on how quickly capital can be deployed. It is in these moments when everything feels safe that weak foundations are laid. As long as conditions remain favourable, these decisions appear justified. When markets tighten, their fragility is exposed and the pendulum swings back. Risk, which seemed dormant, reasserts itself not as a concept, but as default, dilution, and impaired capital. The seeds of the downturn were never planted in adversity; they were cultivated in complacency.
This is the enduring pattern of financial history: risk does not emerge in bad markets. It is mispriced in good ones.
When volatility returns, investors often react not by reassessing risk, but by redefining entire asset classes. Venture is dismissed as inherently speculative. Private credit is labelled uniformly risky. Illiquidity is treated as a flaw rather than a characteristic. What begins as caution quickly becomes a generalisation, and nuance disappears.
This broad brush view feels prudent, yet it is quietly damaging. It replaces analysis with avoidance and turns temporary uncertainty into long-term inaction. Markets do not punish investors for being careful; they punish them for being indiscriminate. By collapsing the spectrum of opportunity into a single label, investors step away not only from risk, but from return.
The error is not merely intellectual. It is compounding in nature. When investors retreat from an asset class entirely, they do not simply delay participation; they eliminate the possibility of capturing the very moments when pricing, competition and discipline shift decisively in their favour. The broad brush view does more than distort perception, it closes the door on opportunity.
Some of the strongest venture capital funds of the last two decades were raised during periods of crisis and disbelief, not during moments of market exuberance. The vintages that followed the dot-com crash and the global financial crisis consistently outperformed those raised during peak enthusiasm. These funds succeeded not because they had access to better information, but because they deployed capital when valuations reflected fundamentals, competition for deals subsided, and only the most resilient founders remained committed to building.
Downturns force discipline. They eliminate vanity spending, prioritise customer value, and reward businesses with genuine product-market fit. They invite founders who build out of necessity, not convenience. They also create an environment where prices reflect reality rather than narrative.
When investors step away from venture during periods of reset, they may reduce exposure, but they also risk missing the periods when discipline returns, valuations reset and competition eases. Historically, many of the strongest venture vintages have emerged not from moments of enthusiasm, but from times when conviction was scarce. These cycles can shape long-term outcomes in ways that are difficult to replicate once momentum returns.
Recent high profile “blow ups” in private credit have encouraged some investors to treat the entire asset class as compromised. This interpretation conflates structure with solvency. The stresses appearing today have not come from the fundamental failure of credit as an asset class, but from the decisions made during its most competitive moments. When capital rushed in, spreads tightened, covenants loosened, and discipline gave way to deployment.
These behaviours are systematic, they reflect the natural excesses of a strong cycle, not systemic. They are correctable through underwriting discipline and structural clarity, not indicative of widespread fragility. To step away now, simply because some lenders abandoned rigor in pursuit of yield, is to confuse behavioural correction with existential risk.
Private credit remains one of the few areas returns are driven by income rather than speculative growth. The opportunity lies in distinguishing between managers who prioritise credit and those who traded it away.
The pendulum has begun to swing, though it has not yet reached its next resting point. This transitional phase rewards investors who engage with nuance rather than narrative. Venture is most attractive when enthusiasm is absent, not when it peaks. Private credit is most resilient when pricing reflects discipline, not momentum. The question is not whether risk exists, because it always does, but whether it is mispriced or misunderstood.
Returns accrue to those who recognise the difference. Investors who approach markets with discernment rather than generalisation position themselves to benefit not from the cycle itself, but from the behaviour it exposes.
Markets will continue to oscillate and sentiment will continue to simplify what should be examined with thought. The opportunity today is not in predicting the swing of the pendulum, but in refusing to let it dictate judgement. Venture does not become less compelling when pricing resets; it becomes more so. Private credit does not become dangerous when standards slip; it becomes selective again. The mistake is not in risk, but in generalisation.
Disciplined capital does not chase certainty. It compounds through cycles that others misread. The challenge for investors is not to avoid the swing, but to recognise when emotion has replaced analysis and to act accordingly.