Private credit, one of the fastest-growing corners of finance, may soon face a sharp rise in defaults that could test investors' confidence in the booming asset class. Steffen Meister, chair of the private capital giant Partners Group, told The Financial Times that there is a "good chance" that the annual default rate — which averaged 2.6% over the past decade — could double in the coming years.
His warning comes amid mounting concern that strains in the $1.7 trillion private credit market could ripple across the broader economy.
"Credit has this issue that if a business does really well, your upside is capped, you just get your interest," Meister said. "Then you have the full downside — and this is where this becomes a problem."
Meister pointed to the rapid expansion of generative artificial intelligence as one factor contributing to what he called a "bifurcation of results," with strong performers pulling away from weaker borrowers. The middle market — typically companies with between $500 million and $1 billion in annual revenue — appears most vulnerable, as diversification among private lenders may not hold up if defaults rise across portfolios.
The Financial Times noted that private credit default rates have been "materially lower" than those in public markets. Yet public market defaults often involve restructurings, such as loan conversions or maturity extensions, without adequate compensation, making comparisons imperfect.
Investor jitters have already led to a wave of redemption limits. According to Bloomberg, Cliffwater's $33 billion private credit fund capped withdrawals at 7% of shares in the first quarter after investors sought to redeem 14%. Morgan Stanley's $8 billion North Haven Private Income Fund set a 5% cap, returning $169 million — about half of what its investors requested.
Other major firms are responding with transparency measures. Apollo Global Management plans to publish monthly net asset values for its credit funds, eventually moving to daily reporting with third-party valuations, as Bloomberg reported. JPMorgan Chase has meanwhile marked down the values of loans tied to software firms, a sign of heightened caution.
An amended SEC filing shows that Blackstone's flagship Blackstone Private Credit Fund (BCRED) raised its repurchase cap from 5% to 7% of outstanding shares, allowing it to meet about $3.7 billion in gross redemption requests — roughly 7.9% of the fund — without limiting investors.
Warnings from high-profile financial leaders underscore the risks. Former Goldman Sachs CEO Lloyd Blankfein, JPMorgan Chase Chief Executive Jamie Dimon and Marathon Asset Management founder Bruce Richards have all cautioned that the private credit boom is "growing riskier" as investors push deeper into the credit cycle in search of yield.
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