Private credit could be the next crisis. How worried should you be?
Concerns that private credit could become the next pressure point on Wall Street are mounting, but industry pros said fears of a broader liquidity spiral may be overstated. The debate intensified after JPMorgan just reduced the value of loans pledged as collateral by some private credit clients. Retail investors have been pulling money from a group of private credit funds in recent weeks, prompting more redemption requests at managers including Blue Owl Capital and Blackstone . Many of the loans were tied to software companies, a segment facing heightened scrutiny as advances in artificial intelligence threaten to disrupt some business models. Strategists at Goldman Sachs estimate that roughly 80% of the direct lending market is held in long-duration drawdown funds, separately managed accounts and publicly traded business development companies, structures that typically don’t allow investors to redeem capital on demand. “Retail redemptions in Private Credit markets remain at the epicenter of investors’ concerns and the media’s attention,” Goldman said in a note to clients. “The vast majority of the Direct Lending space is held in … [vehicles] with no on-demand withdrawal mechanisms, limiting the drawdown risks in the ecosystem broadly.” Risky corner The main vulnerability instead lies in a smaller but rapidly expanding corner of the market: retail-focused evergreen funds. These vehicles have grown rapidly in recent years as asset managers marketed them to individual investors eager for higher yields. Goldman estimates that about $220 billion of assets sit in these evergreen private credit funds, representing roughly 20% of the industry’s total lending exposure. “We think the need to liquidate private loans at the industry level will be limited,” Goldmans said. Sentiment toward direct lenders has soured following the collapse of auto-related borrowers Tricolor and First Brands in 2025. Much of the concern lately has centered on loans made to software companies as investors worry that artificial intelligence could disrupt those businesses. Some investors worry the boom has attracted too much capital chasing increasingly risky borrowers. “I want to be clear that not all private credit is created equal and I see countless deals on my desk,” said Peter Boockvar, chief investment officer at One Point BFG Wealth Partners. “There are very good loan underwriters and many that are not. The asset class suffered from too much money chasing not enough good loans to mostly single B-rated companies.” Debt upon debt Many deals have been tied to leveraged buyouts by private equity firms, he said, layering additional debt onto already indebted companies. Boockvar said he favors lenders financing larger businesses with more than $200 million in earnings before interest, taxes, depreciation and amortization (EBITDA), which are best positioned to withstand economic cycles. Veteran investor Howard Marks, co-founder of Oaktree Capital Management, has sought to tamp down fears of a systemic meltdown. “There’s not a systemic problem with private credit,” Marks said recently. But he cautioned that the sector’s rapid expansion over the past 15 years could expose weaker lenders when economic conditions deteriorate.
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