Private credit warnings dismissed as industry continues to raise billions

Investor appetite for private credit remains undiminished, despite growing warnings of loosening loan approvals and risk assessments and increased stress for borrowers.

Last September’s troubles at First Brands Group, which plunged the highly leveraged auto parts maker into financial crisis, became a flashpoint for critics of private credit and highlighted how an aggressive debt structure had quietly accumulated over years of easy financing.

The incident raised concerns that similar risks could be lurking across the market, with JPMorgan CEO Jamie Dimon warning that private credit risk was “hiding in plain sight” and that “cockroaches” were likely to emerge as economic conditions worsened.

Bridgewater founder Ray Dalio also warned that rising interest rates are putting pressure on leveraged private assets and increasing stress in venture capital and private credit markets as part of broader private market tensions.

Private credit investors reportedly withdrew more than $7 billion from Wall Street giants such as Apollo, Ares and Blackstone in the final months of last year, but capital continues to flow into private credit funds.

Just last week, KKR announced that it had closed $2.5 billion in financing for Asia Credit Opportunity Fund II. TPG, one of the industry’s biggest players, raised more than $6 billion in December for its third flagship Credit Solutions fund, far exceeding its $4.5 billion goal and twice the size of its predecessor.

In November, Neuberger Berman announced the final close of its fifth flagship private debt fund at $7.3 billion, exceeding its initial target as demand from global institutional investors remained strong.

In December, Granite Asia announced the first completion of its first pan-Asia dedicated private credit strategy, raising over $350 million with support from Temasek, Khazanah Nasional and Investment Authority Indonesia, confirming robust investor demand in the region. The first close is when a fund accepts commitments from its first investors and begins investing, even though fundraising is ongoing.

While Dimon was sounding the alarm on private credit, JPMorgan appears to have reassessed the market.

Although underwriting standards have eased in some markets, demand for private credit continues to be supported by structural forces such as persistent demand for funding among middle market companies, infrastructure developers and asset-backed borrowers, JPMorgan said in its Alternative Investment Outlook 2026.

According to Goldman Sachs, private credit has grown into a multitrillion-dollar market and is a core investment destination for many institutional investors. Pension funds, insurance companies and endowments that once treated this asset class as a niche option now see it as a long-term fixture in their portfolios.

“Significant defaults by some U.S. borrowers in September 2025, particularly in the auto sector, have resurfaced concerns about a potential private credit bubble,” the investment bank said.

“While alarming, and despite comments from investors and other stakeholders outside the US domestic market, these defaults appear to be issuer-specific rather than systemic,” JPM said, adding that demand for yield continues to outstrip supply, particularly in private equity transactions.

Private credit industry experts say structural factors are also at play. Private credit funds have become a major provider of financing to middle-market companies as traditional banks pull back from lending due to regulatory constraints.

Reforms after the 2008 global financial crisis, such as higher capital requirements and stricter risk-weighting rules, have increased the cost for banks to keep risky corporate loans on their books, prompting many lenders to exit the leveraged and bespoke lending space, creating an opening for private credit companies to enter.

This dynamic has reinforced the perception that private credit is no longer a niche strategy but an integral part of the financial system.

Funding remains strong, but signs of strain are becoming harder to ignore.

Goldman Sachs has warned that high interest rates are raising borrowing costs and an increasing proportion of companies are struggling to service their private credit debt.

Data provided by the bank showed that about 15% of borrowers were no longer generating enough cash to repay their interest in full, and many others were operating with little margin for error.

The investment bank said that while rate cuts may provide some relief, they would only moderate pressures rather than correcting fundamental weaknesses.

Morningstar also warns that credit conditions for both high-quality and low-credit borrowers will worsen in 2026 as interest rates rise and move through balance sheets, especially compared to the ultra-low levels of 2010-2021.

However, concerns about leverage and borrower stress are not evenly distributed across the market, with industry executives pointing to significant differences between the U.S., Europe, and Asia.

Min Eng, managing director of Granite Asia, said the private credit market in Asia is far less saturated than in the US or Europe. “We don’t see the leverage or contract erosion that people are worried about in the U.S.,” Eng said. “Asia is at a very different stage of development.”

He explained that private credit markets in the US and Europe are crowded with intense competition, pushing for looser structures and higher leverage, while the Asian market is still in a relatively nascent stage. Borrowers, many of whom are founder-led or family-run businesses, remain heavily dependent on bank and equity financing, leaving room for private credit to grow.

“Most of what we see in Asia is still very conservative,” Eng said. “Leverage is lower, covenants are stronger and there is often a real operational story behind the capital rather than financial engineering.”

This distinction is important at a time when there is growing concern about the quality of underwriting in developed markets.