My gratitous investment advice is freely given, here on my daily blog. I do NOT recommend "crypto."
Click this link if you'd like to see my multiple explanations for why I don't.
"Probably?" Hey, if that's how you like to make your investment decisions, please feel free to roll your dice. Like "crypto" (this is my opinion), "private credit" is, essentially, a "bet" that the value of the investments made are going to go up. In other words, most "investments" in the arena of "private credit" are fundamentally speculative.
I found out, recently, that the so-called "gift article" links that I have passed on, from The Wall Street Journal, are time-limited, and since I sometimes write my blog postings quite a bit "ahead" of the date on which they are posted in this blog, the idea that clicking on a "gift link" will get you to the article is almost as speculative as your potential "private credit" investment.
My apologies to anyone who tried to utilize one of my past Wall Street Journal "gift link" postings. I'm not going to advertise them in any of my future blog commentaries. But, to make up for this past error, and to make this blog posting much longer than it would otherwise be, I am providing, below, the entire text of James Mackintosh's May 11th "Streetwise" column, providing those who read it with the following assurance: If you invest in "private credit" offerings you won't lose your money, probably.
Probably!
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Private Credit Isn’t a Major Threat—ProbablyThe question is whether trouble in the sector could spill into the wider economy or—disaster—the wider financial system
By
James MackintoshMay 9, 2026
Financial history provides lots of lessons, but few are more obvious than those regarding lending.
When lending rises rapidly, watch out: Much of it won’t get repaid. When lenders focus on how to get money out the door, rather than whether it will ever come back, watch out. When lenders finance long-dated loans with money that can be taken out sooner, watch out. And when the lenders have a lot of leverage, rely on dodgy credit ratings or are influenced to lend by regulatory demands, prepare for serious problems.
Individual investors are already finding that private credit sold to them doesn’t deliver what they hoped, and many have been
unable to get their money back as quickly as they thought.
The question is whether private-credit trouble could spill into the wider economy or—disaster—the wider financial system, especially the banks where ordinary people keep their deposits. I’m inclined to think that while a bunch of private-credit investors might lose money, losses for the rest of the financial system will be manageable.
But I’m also cautious about repeating the mistake of Ben Bernanke, who as Federal Reserve chairman in 2007
told the world the financial system was insulated from subprime mortgage failures.
Within months of his reassuring words it was clear that tendrils from subprime had wormed their way deep into finance, and the resulting loss of trust led first to a recession and then to the biggest financial crisis since 1929.
So, go back to those historical warnings.
• Rapid rise in lending: check. Private lending has risen 10-fold in a decade and a half, though estimates vary wildly from
$1.6 trillion in assets under management just in the U.S. to well above $3 trillion, depending on what is included.
• Focus on lending, not repayment: check. This is more anecdotal, but even now the discussion among big private-credit funds as they gathered at “Junk Bond King” Michael Milken’s annual conference in Los Angeles was about how to deploy big gobs of money, much of it to data centers, power and other suppliers to artificial-intelligence firms.
• Asset-liability mismatch: check. This is only a small part of private credit, but individuals who didn’t read the fine print of semiliquid business-development companies have discovered that the promise of quarterly withdrawals comes with a cap. When everyone wants to get out, everyone gets only a bit of their money.
It started with Blue Owl, but now private-credit funds run by Apollo,
BlackRock and
KKR have limited withdrawals. A slow-motion run on these funds is under way.
• Leverage: perhaps. According to the Office of Financial Research, most funds borrow almost nothing, but 5% of funds borrow 3.6 times their capital or more to juice returns. That’s still less than the 10 times or more typical for banks, but it’s a lot for a fund. Regulators also worry that a lack of transparency has allowed leverage to be layered in ways that might escape attention.
“Leverage in private credit exists at multiple and varying levels, including within the portfolio companies, private credit funds, at the sponsor level, and investor financing,” said the Financial Stability Board, a global grouping of regulators, on Wednesday. “This layering effect may amplify losses during market stress.”
Regulators mostly worry that trouble in private credit will spill over to banks that lend to it or to insurers that invest in it.
“You always tend to see these kind of excesses after a very benign period for credit,” said Dan Ivascyn, chief investment officer of Pimco, the bond manager. “It started with a very reasonable thesis—banks were pulling back because of regulation—and has now expanded into more and more aggressive forms of lending.”
The scale of private credit in all its forms is comparable in size to U.S. subprime in 2007. But even with the layers of debt, private credit doesn’t seem to have nearly so much leverage and leverage on leverage as back then.
It could be that the failure of MFS and U.S. “cockroaches” Tricolor and First Brands are a sign that the easy lending amid zero rates in 2020 and 2021 is finally catching up with companies. Lots of other private-credit-backed companies have quietly modified terms to avoid formal defaults, known by detractors as “extend and pretend,” while the use of payment-in-kind rather than cash interest payment rose sharply as rates increased.
Private lenders say concern is overdone, overblown by the publicity around the funds that restricted withdrawals and too much exposure to loans to software companies. But the sector remains opaque.
Debt BuildupAs interest rates rose, borrowers added to debt via payment in kind (PIK) rather than payinterest in cash.
“It’s troubling that we don’t have more information,” said Austan Goolsbee, president of the Federal Reserve Bank of Chicago. “The oldest rule of financial accounting is nobody hides good news so that makes me think that whatever’s there is probably bigger and more threatening than it first appears.”
Private-credit losses would have to be big to cause serious problems for their leverage suppliers, with total borrowing from banks and other lenders by private-credit managers estimated by the OFR at up to $540 billion, mostly on fairly conservative terms.
A previously unthinkable risk now being entertained by some is trouble at life assurers. A run—where customers rush to withdraw their money, forcing deeply discounted asset sales and spiraling into catastrophe—is dismissed by most, because of the high penalties and taxes that have to be paid to get out of an annuity or life policy.
But with life companies now holding about 10% of their assets in private credit, according to the Financial Stability Board, their holdings opaque, many owned by private equity, and a widespread belief that they benefit from shopping around for credit ratings that minimize their need for capital, it is enough of a risk to be discussed by major investors.
Equally, bank lending to private credit might be more concentrated, badly structured or more leveraged than the banks and their regulators realize, and so might go wrong more quickly than expected in a recession.
“A whole lot would have to go wrong for it to get to be a systemic issue,” said Anne Walsh, chief investment officer of Guggenheim Partners Investment Management. “I just don’t get the sense that this one has the same hallmarks as past issues.” She’s probably right. Probably.
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